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While we’ve been eagerly waiting for a rate cut, several sectors have been hit harder than others. Retail sales are very closely watched each month as they are a strong indicator of the economy. The retail sales in June saw a 2.3% year-over-year increase while they jumped only 1% year-over-year in July. The rising prices have led to a drop in consumer spending. Despite these numbers, several retail companies have reported impressive second-quarter results and are optimistic about the rest of the year.
The economy is still hot and it is time for smart investors to take advantage. Here are three retail stocks that managed to impress investors even during periods of rising inflation. An improvement in the economy, a rate cut, and improved consumer spending will help these companies see stronger revenue growth. Here are the three stocks to buy before the Fed announces a rate cut.
Costco (COST)
Costco ( NASDAQ: COST ) has always been a very steady and straightforward stock. The giant retailer is a well-established business that has been doing a lot of things right. Since it works on a subscription model, the company can enjoy steady revenue growth. Membership fees account for about 50% of the company’s profits and it enjoys a 90% membership renewal rate.
The company has a history of rewarding shareholders and has increased dividends for 20 consecutive years. While the dividend yield is a modest 0.53%, it is attractive for passive income investors. Up 34% year-to-date, COST stock is exchanging hands for $876 and while it is priced at a premium, this is one stock that keeps giving. The stock is up over 600% in the past decade.
Costco holds a strong worldwide presence and is now expanding beyond the brick-and-mortar locations. It is investing in the e-commerce segment which saw a 21% jump in revenue in the recent quarter . This segment also outperformed the other divisions.
Like its competitors, Costco is building an ad network to make use of the membership data and offer targeted ads to consumers. This will help diversify the revenue stream while ensuring steady growth. Costco members are always going to prefer shopping at a Costco store or online and this will ensure steady revenue growth for the company.
A rate cut could mean big bucks
The biggest retail companies in the country have managed to survive the worst. With experts suggesting a rate cut in September, there will be an improvement in consumer spending and we could see stronger results in the final quarter of 2024.
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Target (TGT)
Set to report results in a few hours, Target ( NYSE: TGT ) was one of the first companies that lowered prices on thousands of items during high inflationary periods. It successfully managed to report impressive numbers and the consensus expects to see $25.22 billion in revenue and an EPS of $2.19 in the upcoming results announcement.
In the first-quarter earnings , the company reported a 3% YOY drop in sales and the revenue came in at $24.53 billion. The EPS stood at $2.03 and saw a modest 1.4% growth in digital sales.
The retail stock has a dividend yield of 3.10% and has raised dividends for 52 consecutive years. Up 12% in the past 12 months and trading for $144, it is an ideal long-term bet. While Target did see a drop in performance in 2023, it has gained ground this year and has seen the market carry a positive sentiment towards it.
Citi analyst has a buy rating for the stock with a price target of $180 and strong performance in the upcoming results can lead the stock higher. 17 analysts have a buy rating for the stock with an average price target of $173.
I believe Target is a buy for the dividend yield and its ability to bounce back as consumer spending improves.
Walmart (WMT)
I am a huge fan of Walmart ( NYSE: WMT ) and I love how it has fulfillment centers across the country, making it easier for consumers to drive to the nearest Walmart and shop. Another dividend stock, Walmart has a yield of 1.11% and is up 40% YTD. Exchanging hands for $74, the stock has been on an upward momentum since May.
It reported impressive quarterly numbers with a 6% YOY jump in revenue to $161 billion. The company understands the changing preferences of consumers and has invested in the e-commerce segment. It saw a 21% jump in online sales and a 24% surge in ad sales. This shows that Walmart is at the right place at the right time. The company has adequate funds to keep distributing dividends and has reported the best fundamentals out of the three companies listed here. It has a payout ratio of 33.37% which has the potential to increase in the coming years.
Walmart has a strong foot in the retail industry and offers exactly what people want. It is trying to drop prices on staples like fruits, baked goods, and eggs. The store has announced it will reduce the prices of 7,200 products to attract customers.
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