5 Best Retail Stocks to Buy in August 2021

Retail stocks would be in focus this week. Several retail giants have lined up their quarterly earnings for this week. We’ll also get the July retail sales data that would offer insights into the consumption story in the US.

Retail stocks are a good way to play the US consumption theme. Consumption accounts for the biggest chunk of the US economy and brick and mortar as well as online retailers strive to grab a chunk of US consumers’ massive consumption appetite. Here are the five retail stocks that you can buy in August 2021.

1. Walmart (NYSE: WMT)

Walmart is the largest brick-and-mortar retailer globally and looks like a good retail stock to buy in August. The company would release its quarterly earnings tomorrow and consensus estimates call for a fall in both the top line as well as the bottomline. The company has divested some of the assets which would lead to lower revenues this year. After adjusting for these, it expects low single-digit topline growth this year.

Walmart looks like a good retail stock to buy in August

Walmart has scaled up its investments and has outlined a capital expenditure budget of $14 billion for the year. Over the long term, it has guided for a capex budget between 2.5-3% of its revenues. The company expects these investments to drive the growth going forward as it steadies itself to take on competition from e-commerce companies like Amazon.

While Walmart stock has underperformed retail stocks in 2021, Bank of America expects it to play catch up with peers.  Walmart stock trades above the 50-day, 100-day, and 200-day SMA (simple moving average) which is a bullish sign. The stock, however, has a 14-day RSI (relative strength index) of 73.4 which indicates overbought positions. RSI values above 70 signal overbought levels while values below 30 signal oversold levels.

Walmart has a dividend yield of 1.5% which is in line with the broader markets. The stock has underperformed the markets by a wide margin this year but the recent underperformance looks like a good buying opportunity. The company is diversifying into several businesses including healthcare and is increasing its e-commerce abilities also. While the valuations are above the historical averages, they don’t look high.

Overall, if you are looking at investing in retail stocks, Walmart looks like an attractive bet in August.

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2. Amazon (NYSE: AMZN)

Since retail has been moving online, e-commerce stocks are also a proxy for the retail industry. Amazon is the largest e-commerce company in the US and also has brick-and-mortar operations after its acquisition of Whole Foods. With a year-to-date rise of only 3.3%, the stock is underperforming the markets by a wide margin. It is the second-worst performing FAANG stock to the year and only Netflix, which is trading with a YTD loss, is performing poorly.

Amazon’s second-quarter revenue growth was below expectations. It was the first time and three years that the e-commerce giant’s revenue growth fell short of estimates. It was also the first earnings under the leadership of Andy Jassy who took over the position of the CEO from Jeff Bezos. Also, the company’s revenue guidance for the third quarter was below estimates.

Amazon looks like a good retail stock to buy

Meanwhile, despite the tepid revenue growth and soft guidance, Wall Street analysts maintained their bullish bets on Amazon stock. Still, only a small percentage of retail sales globally happens online. There is potential for further digitization of the retail market and Amazon is in a prime position to capture the growth, in the US as well as the international markets.

Amazon stock trades at an NTM PE multiple of 58.4x which is near the lowest that we’ve seen in a long time. The valuations seem reasonable looking at the secular growth in cloud and e-commerce industries where Amazon has a strong market-leading position. Amazon has found strong support at the 200-day SMA but would next face resistance at the 100-day SMA. That said, from a long-term perspective, the recent fall in the stock looks like a good buying opportunity.

Wall Street analysts are also bullish on this retail stock and only one out of the 48 analysts polled by CNN Business has given it a hold rating while all remaining analysts have given it a buy rating. Its median target price of $4,130 is a premium of over 25% above current prices.

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3. Costco Wholesale (NYSE: COST)

With a YTD gain of 17.8%, Costco is outperforming its peers by a wide margin. The stock made its 52-week high of $448.36 on Friday only and still looks like a good retail stock to buy for the long term.

Wall Street analysts have split ratings on Costco stock and it has 21 buys, 10 hold, and two sell ratings. Its median target price of $455 is a 1.6% premium over current prices. However, its street-high target price of $515 is a 15% upside potential.

Earlier this month, Wells Fargo raised its target price on Costco from $415 to $480 while DA Davidson raised its from $350 to $390. Oppenheimer advised investors to use any weakness in this retail stock to build long-term positions. Last month, Bank of America also reiterated its buy rating on Costco after strong operating results. “COST reported June comps (for 5 weeks ending 7/4) of 7.8% for the US and 7.9% for the total company. …. We maintain our Buy and continue to see COST as well-positioned in both the COVID-19 environment & long-term,” it said in its release.

Costco looks like a good retail stock to buy

Costco stock trades at an NTM PE of 39.7x which is higher than its historical averages. The multiples are not far from the all-time high of 40.2x. The retail stock is looking bullish on the charts after having made new 52-week highs. However, the stock looks oversold with a 14-day RSI of 81. There looks a possibility of a pullback in COST but any dip could be an opportunity to buy this quality retail stock.

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4. Home Depot (NYSE: HD)

Home Depot stock has gained over 25% this year and is outperforming the S&P 500. The home improvement market has been strong which has helped Home Depot stock. Earlier this month, UBS reiterated its buy rating on Home Depot and called home improvement stocks “compelling.” It said “Heading into HD & LOW’s 2Q prints, we believe the market has consternation on how home improvement (HI) trends will unfold in the near-term. Yet, we think investment case on HI remains compelling over the long-run.”

retail stocks to buy

Of the 34 analysts polled by CNN Business, 23 rate HD stock as a buy or some equivalent while 10 rate them as a hold. Only one analyst has a sell rating on Home Depot stock. Its median target price of $350 is a 5.6% premium over current prices. The street high target price target of $391 implies an upside potential of 18%. Wall Street analysts might take a more favorable view of the retail stock after the earnings release this week.

Home Depot looks like a good retail stock to buy

Home Depot stock trades at an NTM PE multiple of 23.9x which is higher than the 21x that it has averaged over the last five years. Looking at the technicals, Home Depot stock trades above the 50-day, 100-day, and 200-day SMA. The stock is looking in an uptrend. If you are looking at a retail stock in the home improvement industry, HD looks like a good bet.

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5. Tesco (OTC: TSCDY)

tesco international retail stocks

Looking at retail stocks globally, Tesco looks like a good bet. The London-listed stock is down over 19% and is underperforming the markets. Of the 19 analysts polled by Financial Times, 15 rate Tesco shares as a buy or some equivalent while three rate them as a hold. Only one analyst has a sell rating on Tesco. Its median target price of 290p implies an upside of 19% over the next 12 months. The highest target price of 392.67p is a premium of almost 61.6% while the lowest target price of 220p is a discount of 9.4%.

Tesco shares have rebounded from their 2021 lows and look in an uptrend. The stock could however be getting near the overbought zone with a 14-day RSI of 69. The stock has looked weak this year on concerns over the growth slowdown. Tesco also admitted to a slowdown in topline growth in 2021 amid easing COVID-19 restrictions. As consumers venture out amid easing lockdowns, retail sales might not keep pace with the growth that we saw last year. Travel and other outdoor entertainment will take a larger pie of consumer wallets this year.

Tesco looks a good retail stock

However, Tesco’s profitability is expected to bounce back in 2021. During the earnings release, it said that “we expect a strong recovery in profitability and retail free cash flow as the majority of the additional costs incurred as a result of the pandemic in the 2020/21 financial year will not be repeated.”

Tesco looks like a good retail stock to buy and play the UK retail market. The stock has been out of favor with investors but could rebound once sentiments improve. Tesco looks valued reasonably with an NTM PE of 13.3x which is below the average multiples over the last five years.

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About Mohit PRO INVESTOR

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA with finance as majors and also holds a CFA charter. He has over 14 years of experience in financial markets. He has been writing extensively on global markets for the last seven years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.