5 Retail Stocks That Show Growth is Good
Nate is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Driving down Route 52 this weekend I saw a sign. Not like, in the sky or anything, but a development sign. It said 'Coming Soon: 50 Acre Retail Destination Shopping.'
Apparently, a new shopping center is coming to my corner of South Carolina. It promises new 'upscale' shopping in a convenient location. Well, the sign does, anyway, and that was enough to get my wife and two girls excited. I'm not much of one for shopping, God knows, but it was enough to get me thinking about the long term prospects for retail stocks. There's more there than meets the eye.
One of my most basic beliefs is that the American economy is on its way back. Growth is slow, but steady, and things look brighter now than they have since 2008. Unemployment is going down and consumer spending in December was the highest in four years. Those are all very good signs for the retail sector and should get you thinking about the profits to be made, both for the firms and for you, as an investor.
There's retail and there's retail, though. Which retail companies can provide the return you want is as important as the simple decision to invest in the retail sector at all. High end? Low end? How will spending play out?
My thinking is that the prudent consumer should have a chart of both high-end and low-end retailers to cover the bases. Walmart (NYSE: WMT) should be a part of any retail portfolio, you should know that if you've been reading me. But here's my thinking on a reasonable set of retail stocks to provide growth while also providing protection against the fluctuations that the retail sector can see.
Of course, any investor who's thinking retail should have some Walmart in their portfolio. The Bentonville-based giant is somewhat of the 800-pound gorilla in the sector. While they face pressure from other low-end retailers, as I'll discuss below, no one is moving them off the top spot any time soon. In the last year Walmart stock has gone from $59.10 per share to $68.43. Toss in the fact that its board raised the dividend from 37 cents to 40 cents and it's a stock you should have.
Target (NYSE: TGT):
Target is, to my mind, the most significant competition that Walmart sees in the retail space. While maintaining its own, unique look, the retailer gives the appearance of being more upscale while keeping prices lower than Walmart. So you have a shopping experience that provides some consumer reinforcement while also being cheaper. A strong 12-month stock performance doesn't hurt, too. A year ago the firm's shares were trading at $48.57 while today they're at 60.58. Dividend growth has been good, too, with the firm increasing dividends by 20% over the year, from 30 cents to 36 cents per share.
Nordstrom (NYSE: JWN):
For the investor looking to round out his or her portfolio with some high-end retail, Nordstrom can fill that need. Not for the faint of heart, shopping at the truly upscale Nordstrom can be a pricy, but satisfying experience. The firm has the reputation for providing costly and quality goods. There's real money spent there, but shoppers report a high level of satisfaction from the experience. The company's stock has gone from $49.66 per share to $54.73 so it hasn't performed quite as well as Walmart and Target recently, but in a growing economy where people are spending more it could surprise.
Home Depot (NYSE: HD):
The first real specialty retailer on this list, Home Depot provides home improvement and building supplies to both large construction firms and homeowners. A growing economy means more building and construction and more moms and dads painting the living room as they become more comfortable spending on their homes. Another strong growth stock, its shares have climbed from $43.23 a year ago to $63.18 now. So money invested a year ago would have grown almost 50% and I don't think that's ended.
Walgreen (NYSE: WAG):
I couldn't leave a pharmacy off this list. While not everyone across the country will know about Walgreen (there are some regions where they're rare) the firm is one of the top pharmacies in the country, recently coming in 4th in the National Retail Federation's list of top retailers. The firm's sale grew more than 8% from 2010 to 2011, the latest year for which data is available and it has the most stores out there of any of the top 10 on the NRF list. The stock has had some ups and downs over the last year but finished up a bit more than 10% from a year ago. Raising its dividend from 23 cents per share to 28 cents isn't exactly a sign of weakness, either.
So, those are five stores I wouldn't mind seeing go in about half a mile from my house. I know that my family would shop there if any of those are the anchor stores going into the new mall. My biggest concern is making sure that I get some extra return on my family's shopping trips. And that means making sure I position myself correctly to take advantage of a retail sector that benefits from a growing economy. You can, too, if you pay attention to what's going to be built around you.
Other columns by Nate Wooley:
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