Ready or not… the holiday shopping season is just around the corner. While the holidays are a special time for families, they are a crucial time of year for retailers, as a good or bad holiday season can literally make or break a company's entire year.
Retailers fight a very competitive battle against one another to gobble up as much of the holiday shopping as possible, opening longer hours and offering big sales to get buyers in the doors. Online shopping is now a huge part of the overall retail space, and retailers have been forced in recent years to beef up their online business to avoid being the next big retailer to fold up business.
The current economic landscape is very favorable for retailers. Low unemployment has resulted in high consumer confidence which in turn leads to strong consumer spending. Some retailers will enjoy very strong numbers this holiday season, while others will be struggling to draw in consumers.
Each year retailers start their holiday seasons earlier, and this year will be no exception. Black Friday and Cyber Monday will once again be the official kick-off to the holiday season, but stores will be ramping up their promotions well in advance of those days in order to capture early season shoppers.
With a strong retail environment, there are a few stocks that stand out as the possible big winners this holiday season. Let's take a closer look at a few of the companies that should enjoy strong demand as consumers prepare for the upcoming holiday.
Amazon.com (AMZN)
The holiday season is always a busy time for e-commerce giant Amazon.com (AMZN). AMZN stock took a hit following a Q2 earnings miss in July, but the company reported strong sales in the quarter which somewhat eased the selloff of the negative earnings surprise. Consumer confidence remains strong, and Amazon should benefit from that as we approach the holiday shopping season. The company reports after the market close on Thursday, and that report should set the tone for the stock as we approach the end of the year. What sets Amazon apart from other retailers is that the company has also built a large revenue source from the rapidly growing cloud-computing space. Being a leader in both sectors gives Amazon great revenue streams and should allow the company to continue growing earnings are a rapid pace. Analysts forecast earnings to rise at an annual rate of 56% over the next five years, making the stock a solid long-term holding.
Wal-Mart (WMT)
Mega retailer Wal-Mart (WMT) has enjoyed strong market performance in 2019, with shares up 28% as we head into the holiday shopping season. Wall Street has remained bullish on the company as it continues to build its e-commerce business, and as investments made in its employees and physical stores have improved customer satisfaction and same-store sales. The company most recently reported earnings in mid-August with better than expected results on both the top and bottom line. Last quarter the company reported online sales were up 37% year over year. Wal-Mart remains the king of brick and mortar retail, and being the largest grocer in the U.S. gives the company an advantage over other retailers as the grocer business is a main driver for customer traffic. Analysts expect Wal-Mart to grow earnings at 5% annually the next five years which should keep strength under the stock.
Target (TGT)
After a few rocky years Target (TGT) is once again a darling of Wall Street with the stock hitting an all-time high earlier this month. The turnaround in investor sentiment has been the company's ability to show improvements in its e-commerce business. Target was slower than its main rival Wal-Mart (WMT) to grow its online business, but recent investments have been paying off and its online sales are growing. Last quarter the company reported that online sales were up 34%, falling just shy of Wal-Mart's 37% growth. A big part of Target's online sales growth strategy revolves around same-day pickup at its physical stores. Same-day fulfillment accounted for around 75% of the company's overall digital sales growth last quarter, up from 50% in the previous quarter. Target smartly realized that customers are willing to do more shopping online with the option to pick up their orders same day, and the company has put a lot of resources into making that experience as quick and easy as possible. Amazon and Wal-Mart have both taken notice and are increasing their same-day fulfillment options, but for now Target seems to have found the perfect recipe for success, and the numbers are proving that to be the case. During the hectic holiday season busy shoppers will do as much online ordering as possible, and this year Target will be a key player in that area.
Best Buy (BBY)
It was not that long ago that a lot of traders were worried that Best Buy (BBY) would be the next big box retailer to fall victim to Amazon's growing importance. To fight the growing threat of "showrooming" that put numerous brick and mortar retailers out of business Best Buy made some very smart decisions to combat Amazon's threat. The company shuttered its weakest performing stores, it made it stores less crowded and focused on fewer products, it invested heavily in its online business and employees to provide the best possible customer experience, and it began to price match competitors. Price matching became a powerful tool to combat customers researching and testing products in its stores and then purchasing them cheaper online. Best Buy has managed to gain Wall Street's trust and the stock is currently trading just below its all-time high and shares are up 36% year to date. The company posted mixed results last quarter with a big earnings beat and will not report again until November 28. Best Buy has grown earnings at an annual rate of 24% over the last five years, and while growth is slowing, analysts still expect to see profits rise at 7.2% per annum over the next five years, and the stock currently trades at an attractive 13 times earnings.
