5 Best Retail Stocks to Buy in December 2021

There has been a lot of divergence in retail stocks this year. While some stocks are outperforming the markets by a wide margin, others are underperforming. On the positive side, the US consumption story looks intact and October retail sales were also better than expected.

Most retail companies released their earnings last month which were generally better than expected. However, on the flip side, retail companies are facing margin pressures amid rising labor costs in the US. Also, the supply chain bottlenecks have led to a shortage of some goods as well as higher expenses for retail companies.

Meanwhile, now we are into the peak holiday season. While some consumers likely preponed their purchases amid fears of shortages, this year’s holiday season is expected to be strong amid the continued momentum in the US economy. Unless the omicron variant really starts to spread fast and we see crippling lockdowns, the US economy looks in good shape. With that as the background, these are the five best retail stocks that you can buy in December.

1. Walmart (NYSE: WMT)

Walmart stock is underperforming the markets in 2021 and the losing streak only extended over the last couple of weeks amid the threat of the omicron variant. The stock is currently down 6% for the year. However, it looks like a good retail stock to buy in December and bet on the long-term strategic investments that the company is making in the supply chain and e-commerce.

WMT is the biggest retail stock

Walmart is the largest brick-and-mortar retailer globally. Wall Street analysts are also bullish on WMT stock and consensus estimates call for an upside of almost 24% over the next 12 months. Of the 35 analysts covering the stock, 28 rate it as a buy while the remaining seven have a hold rating. The stock now trades at an NTM (next-12 months) PE multiple of 20.4x which looks reasonable. It has a dividend yield of 1.6% which is slightly above that of the S&P 500.

Overall, if you are looking to invest in retail stocks, WMT is one name that should definitely be on your radar. The company has aggressive plans in the e-commerce space which would drive long-term value.

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2. Macy’s (NYSE: M)

Macy’s stock has come off its 2021 highs, in line with other retail stocks. However, with a YTD gain of over 146%, it is among the best performing retail stocks of 2021. Macy’s reported revenues of $5.4 billion in the fiscal third quarter which were higher than the $5.2 billion that analysts were expecting. The company’s comparable sales increased 37.2% on an owned basis and 35.6% on owned plus licensed basis. Its comparable sales on an owned basis increased 8.9% as compared to 2019.

Macy’s earnings were better than expected and it also raised its full-year guidance. It now expects to post revenues between $24.12-$24.28 billion in the fiscal year as compared to the previous guidance of $23.55-$23.95 billion. It expects to post an adjusted EPS between $4.57-$4.76 in the full year. The company is forecasting an adjusted EBITDA margin in excess of 12.5% in the year which is higher than the previous guidance of 11-11.5%.

Macy’s is a good retail stock to buy

Macy’s looks like a good retail stock to buy and looks attractive after the crash. The company has been trying to turn around its business and has closed several stores as part of the plan. It is also focusing on the online business which would add long-term value. The stock’s valuations are at a discount to other retail stocks which makes it an attractive buy.

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3. Dollar Tree (NYSE: DLTR)

Dollar Tree stock has seen upwards price action over the last couple of months. The company has said that it would add more goods above $1 to its shelves. It also increased the share buyback program to $2.5 billion which helped lift sentiments and triggered a rally in the stock. While the company is known for selling products below $1, it has been experimenting with adding higher-priced products to its portfolio.

Activist investor Mantle Ridge has taken a 5.7% stake in the company and might pressurize DLTR to sell the Family Dollar business has that has been sagging. The stock has risen after these strategic changes and the news of Mantle Ridge taking a stake.

Goldman Sachs turned bearish on the retail stock

Meanwhile, after the sharp rise, Goldman Sachs turned cautious about the stock. “We believe the stock now reflects the earnings uplift from the price increase at Dollar Tree as well as recent media reports around the potential for operational improvements, while incremental growth is likely limited due to an expected slowdown in discretionary spending by the low-end consumer and declining traffic,” it said in its release.

However, DLTR stock has come off its highs and looks like a good retail stock to buy in December and play the new business strategy of focusing on higher-priced goods.

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4. Kroger (NYSE: KR)

Kroger looks like another good retail stock to buy in December. The stock is also part of Berkshire Hathaway’s portfolio, whose chairman Warren Buffett is among the best value investors of all time. Kroger is the largest supermarket chain in the US. It released its fiscal third-quarter earnings earlier this week only. The earnings were better than expected and the company also raised its full-year guidance. Markets also gave a thumbs up to its earnings report and sent the stock north.

Kroger has said that some of the stay-at-home trends are sticking which is positive for its business. For instance, the company said that a lot of customers who learned to cook during the pandemic continue doing so even now. The company’s sales growth has been impressive and it has been trying to manage inflation through price hikes on select products. The stock has a dividend yield of 1.9% which looks impressive when compared with other retail stocks.

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5. SPDR S&P Retail ETF (NYSE: XRT)

ETF investing has become very popular and total ETF assets are now around $7 trillion. If you want to build a portfolio of retail stocks without having to worry about selecting and buying individual stocks, you can consider an ETF. XRT is among the ETFs which can give you diversified exposure to the sector.

ETFs can be a good investing strategy especially for investors who lack the time or analytical skills to pick individual stocks. Their low expense ratio makes them an attractive investment option.

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