As we near the holidays, retail stocks are rebounding.
The XRT S&P Retail SPDR has gained nearly 6% so far this month as hopes for economic recovery in the wake of the coronavirus pandemic have risen. The ETF has been boosted by retail names including Best Buy (NYSE: BBY), Etsy (NASDAQ: ETSY), Gap (NYSE: GPS), and Ross Stores (NASDAQ: ROST).
Chantico Global CEO Gina Sanchez argues investors should consider discount retailers heading into the holidays.
“If you’re not going to go for e-commerce convenience, which has been benefiting Etsy, then you’re going to go for low cost,” Sanchez said. “We think names like Dollar General (NYSE: DG) or Target (NYSE: TGT)… could continue to be robust through the holiday season.”
Sanchez isn’t the only one bullish on Target shares. Gordon Haskett analyst Chuck Grom named Target one of his favorite picks for the holidays in a note out this week.
Grom estimates consumers have pulled back on travel and experiences by about $350 billion this year, leaving a significant amount of money for them to redirect toward holiday shopping, which he says will result in a much stronger holiday season than expected which is especially good news for a big box retailer like Target.
Piper Sandler’s Craig Johnson has his eye on another name in the retail space.
“The Best Buy chart looks like it’s just getting started in here,” Johnson said.
“The stock is finally breaking out to new highs,” Johnson said, pointing to Best Buy’s chart. “We’ve been seeing a nice pickup in the relative performance.”
Johnson added that beyond the technical picture, Best Buy shares also look good from a fundamental perspective, noting research from Piper Sandler analyst Peter Keith.
Keith has “got a $138 target on [Best Buy]. It looks like there’s more to go,” Johnson said. “The stock is still trading cheap relative to the historical, longer-term compound average growth rate of around 21%. So this stock looks like it still should be brought.”
Another stock Johnson has his eye on is Gap.
“We don’t follow this stock fundamentally, but you’ve got a great long-term downtrend reversal, insiders own about 17% of the company and the trend is great,” Johnson said.
“That big long-term down[trend] reversal now making a series of higher highs and higher lows on the chart looks like another stock in here that still has more room to run,” Johnson said.
Gap shares are up nearly 23% year-to-date, and have gained more than 9% in the last month alone.