Top Retail Stocks to Invest in
The retail industry has gone through some significant changes in recent years. The rise of e-commerce, the impact of the coronavirus and changing consumer attitudes have all led to bankruptcies and consolidations in the sector.
But, that has also led to some retail stocks dominating their sector which has led to increased investor demand wanting to 'cash in.'
With improving consumer fundamentals, some retailers are set for exponential growth - something that investors can simply no longer ignore. Read on to find out more! ▼
In this article you will learn:
✅ The different types of retail stock categories and which ones are in hot demand right now!
✅ When to buy the best retail stocks during specific times of the year, such as the holiday season. It's an investor secret called 'seasonal investing' and something you need to know about.
✅ The top retail stocks that could be set for exponential growth amid improving consumer fundamentals and demographics (millennials have forced a huge change in the retail sector creating some very interesting opportunities for the investor).
✅ How to gain passive exposure to the fast-growing US retail sector through exchange traded funds (ETFs). This allows you to gain exposure to more than 80+ retailers through just one investment!
✅ How to access the right products and tools to take advantage of the upcoming boom in a selection of retail stocks, including:
✔️ How to open an Invest.MT5 account with a minimum of just €1 and access low commissions from just $0.01 on US stocks!
✔️ How to access advanced investing tools such as the Technical Insight Lookup indicator which provides you with actionable investing ideas on thousands of stocks all around the world!
✔️ How to test all of the services from Admiral Markets UK Ltd completely FREE by opening a demo account!
✅ And much, much more!
What are retail stocks?
In the financial markets, stocks are broken down into 11 different sectors that represent the overall economy. These include sectors like energy, basic materials, industrials, healthcare, financial and many others. The term 'retail' falls in the consumer discretionary stock sector.
The consumer discretionary stock sector comprises a variety of different retail companies that we all use on a daily basis and is usually where most people's income goes. These are companies where we spend money because we want to but don't necessarily need to.
The companies in the retail sector are generally broken down into different industries. This includes:
▶️ Apparel retailers.
▶️ Automotive retailers.
▶️ Food retailers.
▶️ Computer and electronic retailers.
▶️ Department stores.
▶️ Drug retailers.
▶️ Internet and direct marketing retailers and others.
As you can see there are a variety of different types of retailers and you may already be familiar with some of them. For example, apparel retailers such as Nike, automotive retailers like Ford, food retailers such as Walmart and internet retailers like Amazon. As the retail landscape has faced a lot of challenges in recent years, there are some retailers that have adapted very quickly and dominated their industry. These are the companies that tend to be in hot demand from investors and ones that we will explore further down this article.
➢ Did you know that you can view the share prices of many of these retailers by downloading the MetaTrader 5 trading platform provided by Admiral Markets completely FREE?
This not only allows you to view real-time and historical share prices but also gives you access to a suite of advanced trading and investing tools - all for free!. Click on the banner below to get started with your free download which will also help you follow through some of the next examples:
The best time for retail stocks? Seasonal/holiday investing
Before we look at some of the best retail stocks to invest in, it is important to understand that retailers make their income from consumers. This means that economic changes can have a huge impact on retail stocks.
☑️ In times of economic uncertainty and large unemployment - such as during the coronavirus pandemic in early 2020 - consumers tend to spend less and save more thereby negatively impacting retailers' profit margins.
☑️ In times of an economic boom, low unemployment or general optimism surrounding the economy, consumers tend to spend more thereby positively impacting retailers' profit margins.
However, there are other factors that can impact consumer spending. One of the biggest is the holiday season. Towards the end of the year, retailers try to attract more consumer spending through Black Friday and Cyber Monday sales. And, over Christmas, consumers tend to spend a bit more anyway! All of this creates great opportunities for retail companies to improve their profit margins.
As an example, the Retail Stocks Index below shows some very interesting holiday patterns: ▼
The Retail Stocks Index is designed to measure a variety of retail sub-industries from the S&P 500 list. In the chart above, it shows that the best performing months for the retail sector as a whole tends to be around April, July and November from the period between 2008 and 2020. This makes sense as Easter is another big holiday season in April. July is preparation for summer holidays and November is full of holiday specials such as Black Friday and Cyber Monday.
Unsurprisingly, August is the worst month for the retail sector. This is a month where many families are holidaying with kids out of school. However, the month before tends to be one of the best months for the retail sector as everyone gets ready to buy new supplies for their holidays, or even work being done at home during the time off.
In the following sections, we will go through some of the biggest and best names in retail right now. However, users can access investment products that capitalise on the retail sector as a whole. For example, the SPDR S&P Retail ETF gives investors exposure to the retail segment of the S&P Total Market Index and includes a wide variety of retail sub-industries.
How to invest in the retail stocks index via ETFs
The SPDR S&P Retail ETF allows investors to gain exposure to a variety of retail sub-industries from the S&P 500 stock market index. It aims to track the S&P Retail Select Industry Index which represents the retail segment of the S&P 500 Total Market Index.
Below is a chart showing the fund's allocation of retail sub-industries: ▼
This means investors can gain exposure to all these different industries, although not at an equal weighting. The biggest industry invested in by the fund is internet and direct marketing. However, this is most likely because there are now many more online retailers and also where the trend of retail is moving to in the future. However, each one of these industries requires spending from the consumer so the patterns discussed earlier still hold true.
The ETF also provides details on its largest holdings. As of November 2020, the fund held 84 stocks of which many will be recognisable such as Amazon, Walmart, Ulta Beauty, Macy's, eBay, Kohl's, Ross Stores, Urban Outfitters, Target, Foot Locker, Tiffany & Co, Etsy and others. The funds top ten holdings are listed below: ▼
While investors can investigate these individual stocks further, they can also simply invest in the ETF itself. This can be done directly from the Admiral Markets Invest.MT5 MetaTrader trading platform. Below shows the long-term monthly chart of the SPDR S&P Retail ETF: ▼
Source: Admiral Markets MetaTrader 5, #XRT, Monthly - Data range: from 1 Jun 2006 to 10 Nov 2020, access on 10 Nov 2020 at 11:36 am GMT. Please note: Past performance is not a reliable indicator of future results.
The long-term chart above, shows an impressive rally after the 2008 financial recession until 2015. From 2015 to 2020 the price traded sideways in a range before rallying back up shortly after the coronavirus pandemic. Just as government stimulus helped to lift the economy after the 2008 financial recession, the stimulus measures enacted by central banks after the coronavirus pandemic may well have a similar effect as the fund's share price has started to rally higher.
You can learn more about SPDR ETFs in the ' Best SPDR ETFs to Invest in' article.
To view the price charts of stocks and ETFs from 15 of the largest stock exchanges around the world, simply follow the steps below:
- Open the MetaTrader 5 trading platform provided by Admiral Markets, or start your free download here.
- Click View from the top menu to open the Market Watch window.
- In the last line of this window start typing the instrument you wish to trade on or the symbol, such as #XRT, then press enter.
- To view its price chart, simply drag the symbol onto the chart.
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Top retail stocks list
While ETFs such as the SPDR S&P Retail ETF gains investors exposure to the broader sector, investors may want to focus on investing in shares of individual companies they think are best. This allows the investor to build their own portfolio of retail stocks in sub-industries they believe are the strongest.
How do you actually find the top retail stocks to invest in? One of the simplest ways is to focus on the biggest names within the retail sub-industry you are interested in. In a recent report from Kantar, the world's leading data, insights and consulting company, they found that 17 US companies were in the top 50 of global retailers. To make it on the list a company needs to have a turnover of at least $24 billion annually.
Not all of the companies are publicly listed entities. However, the top three on the list are - Walmart, Amazon and Costco. With Admiral Markets you can trade and invest in all of the publicly-listed companies in the top 10! This includes:
☑️ Walgreens Boots Alliance
☑️ Home Depot
Let's have a look at some of these companies in more detail and view their share prices to identify and potential opportunities.
#1 Wal-Mart Stores (WMT)
Walmart was founded in 1962 and has since become the largest retailer in the world. The company boasts more than 11,700 stores in more than 28 countries. More than 1.5 million Walmart employees are in the US and its transportation fleet has over 7,800 drivers with 61,000 trailers. In 2019, Walmart's gross revenue was more than $510 billion.
Source: Admiral Markets MetaTrader 5, #WMT, Monthly - Data range: from 1 Oct 2005 to 10 Nov 2020, accessed on 10 Nov 2020 at 16:14 GMT. Please note: Past performance is not a reliable indicator of future results.
The long-term trend of Walmart's share price has been rising since 2005 with one major fall during 2015. However, since then the company's share price has been surging higher on the retail boom and foray into new regions and e-commerce. The 50-period (red) and 100-period (green) exponential moving averages are also angling upwards and separating away from each other confirming an uptrend.
You can learn more about the power of moving averages in the Admiral Markets YouTube video 'A Deep Dive Into Moving Averages.'
#2 Amazon (AMZN)
Amazon is a company that probably needs no introduction. The internet retailer is famed for its Alexa and Firestick devices, as well as Prime Day and Black Friday sales. The company was only founded in 1996 but made revenues of more than $280 billion in 2019. Amazon is not a traditional retailer as they make most of their revenue from its cloud computing business.
Source: Admiral Markets MetaTrader 5, #AMZN, Monthly - Data range: from 1 May 2013 to 10 Nov 2020, accessed on 10 Nov 2020 at 16:15 GMT. Please note: Past performance is not a reliable indicator of future results.
In the above monthly chart of Amazon's share price, it is clear to see the long-term, rather undisturbed trend higher. Both the 50-period and 100-period moving averages are confirming the trend upwards but with price overextended. Investors may be cautious at these levels as in late 2020 European regulators have questioned the fairness of Amazon's practices which will embroil the company in a lengthy legal battle.
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In this supercharged version, you can access technical analysis from Trading Central on thousands of different financial instruments, as well as actionable trading ideas from the Technical Insight Lookup™ indicator.
For example, below shows all the active events for Amazon's share price on 10 November 2020: ▼
A screenshot showing an example of searching 'Amazon' in the Trading Central Technical Insight Lookup indicator in the MetaTrader 5 Supreme Edition platform provided by Admiral Markets.
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#3 Home Depot (HD)
Home Depot is the largest home improvement retailer in the United States and was founded in 1978. The company boasted revenue of more than $100 billion in 2019 and is well-known for its large warehouses which service professional tradesmen, as well as do-it-yourself (DIY) homeowners.
Source: Admiral Markets MetaTrader 5, #HD, Monthly - Data range: from 1 Sep 2005 to 10 Nov 2020, accessed on 10 Nov 2020 at 16:16 GMT. Please note: Past performance is not a reliable indicator of future results.
Interestingly for Home Depot's share price it only started to perform well from 2010 with its share price actually trending lower for many years beforehand. The company went through a range of changes from 2010 which included closing its big stores in China, establishing new distribution centres in Atlanta and Los Angeles and replacing its CEO who embarked upon several acquisitions to increase their foothold online.
Costco operates a chain of membership-only warehouse clubs and, as of 2019, is the third-largest retailer in the world after Walmart and Amazon. The company was founded in 1976 and recorded revenues of more than $152 billion in 2019. While headquartered in Seattle, the company embarked on a series of acquisitions that led to more than 785 warehouses in countries all around the world.
Source: Admiral Markets MetaTrader 5, #COST, Monthly - Data range: from 1 Oct 2005 to 10 Nov 2020, accessed on 10 Nov 2020 at 16:17 GMT. Please note: Past performance is not a reliable indicator of future results.
The company's share price continues to exhibit long-term uptrend characteristics with the 50-period, 100-period and 200-period (black line) all angling upwards and separating away from each other. While the price is overextended from its moving averages, the fundamentals of big retailers like Costco remain strong as they manage to maintain a strong footing in traditional 'bricks and mortar' stores/warehouses, as well as dominate internet retailing as well.
Since the coronavirus pandemic in 2020, the retail sector has changed dramatically. While many traditional stores have closed it has helped to concentrate business to a select few. Identifying these companies and the ones that have a strong, or growing presence online could be very interesting as consumer activity picks up.
Whether trading or investing in retail stocks, keeping a close eye on the holiday season and reporting of activity from Black Friday sales, Cyber Monday sales and activity over the Christmas period could help to filter the retailers whose prospects continue to be strong.
Why invest in retail stocks with Admiral Markets?
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.