5 Best Retail Stocks to Buy in September 2021

Retail stocks have whipsawed in 2021. Some of them are trading below their 52-week highs amid concerns over slowing retail consumption in the US.

US retail sales in July fell more than expected. Also, as the economy has reopened other activities are also attracting consumers’ wallet share. What are the five best retail stocks that you can buy in September 2021?

1. Kroger (NYSE: KR)

Kroger stock is up 47% so far in 2021 and is outperforming the markets by a wide margin. The stock has been in the news because the 13F filing of Berkshire Hathaway, which is lead by the legendary value investor Warren Buffett, showed that it has increased the stake in the company. The conglomerate first took the position in the retailer in the fourth quarter of 2019 and has since increased the stake. After the most recent purchase, Berkshire holds an 8.3% stake in the retail stock.

Kroger looks like a good retail stock to buy

Kroger is among the best retail stocks to buy in September 2021. Wall Street analysts meanwhile are not too bullish on the stock. Only six of the 28 analysts polled by CNN Business have rated KR stock as a buy or some equivalent. 15 analysts rate them as a hold while the remaining seven analysts have a sell rating. It has a median target price of $40 which implies a downside of 15.5% over the next 12 months. After the massive rise in 2021, it trades very close to the street high target price.

The stock has a dividend yield of 1.8% which is slightly higher than the S&P 500’s dividend yield. Looking at the valuations, the stock trades at an NTM (next-12 months) PE multiple of 16.6x. The stock’s NTM PE has averaged 13.4x over the last ten years. That said, given their pivot toward e-commerce, retail stocks have seen a rerating of their valuation multiples. Also, the broader market valuations are also trading significantly above their 10-year averages.

Kroger stock recently hit its 52-week high and trades above the 50-day, 100-day, and 200-day SMA (simple moving average) which is a bullish sign. However, after the rise over the last few trading sessions, the stock now appears overbought with a 14-day RSI (relative strength index) of 70.9. RSI values above 70 signal overbought positions while values below 30 signal oversold positions.

All said, Kroger looks among the best retail stocks to buy in September especially if are willing to take a long-term bet like Buffett.

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2. Walmart (NYSE: WMT)

Walmart stock has looked weak in 2021 and the stock is up only about 1.5%, underperforming the markets by a wide margin. However, it is among the best retail stocks to own. The company is the largest retailer globally and is also scaling up its e-commerce operations.

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.

It has also been expanding globally and acquired Indian e-commerce company Flipkart. Over the medium to long term, Flipkart would be a key driver of Walmart’s earnings considering the fact that India is among the fastest-growing market and the e-commerce market in the country is almost a duopoly between Flipkart and Amazon.

Walmart looks like a good retail stock to buy

Just like Amazon is synonymous with e-commerce, Walmart is also synonymous with brick-and-mortar retail. Most Wall Street analysts are bullish on Walmart and it has received a buy rating from 27 out of the 36 analysts polled by CNN Business. The stock has a median target price of $170 which is a premium of 14.4% over current prices.

Last week, Morgan Stanley reiterated its overweight rating on Walmart expressing optimism over its GoLocal delivery service. “Delivery as a service makes sense. Few retailers can make money in this way. GoLocal can improve WMT’s own grocery delivery economics. Greater alternative revenue means more ammunition to feed the flywheel,” it said in its note.

Notably, Walmart has taken an aggressive posture in the e-commerce markets as it looks to protect its turn from companies like Amazon. Markets have also taken note of these efforts and the stock’s valuation multiples have expanded. It trades at an NTM PE of 23.5x which is significantly above the 10-year average of 17.8x.

Walmart has a dividend yield of just about 1.5% which is largely in line with the S&P 500. If you are looking at a retail stock that can be part of your core portfolio, Walmart looks among the best bet.

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3. Five Below (NYSE: FIVE)

Five Below is a specialty retailer and mostly sells goods priced below $5. The stock tumbled 13% yesterday after its fiscal second-quarter earnings and third-quarter guidance fell short of estimates. The stock is still up 12.5% for the year but trades at a discount of 21% from the 52-week highs. While the stock is in a  bear market territory, it is among the best retail stocks to buy especially considering its strong growth outlook and reasonable valuations.

Five Below is among the best retail stocks to buy

Five Below trades at an NTM PE of just about 38x. The multiples don’t look high considering the fact that analysts expect its revenues to rise 43% in the current fiscal year and 18% in the next fiscal year. The company’s sales have been growing at a faster pace than the retail industry and it has gradually been opening new stores. The company had 1,121 stores at the end of June and it expects to add between 40-45 stores in the current quarter also.

Jeffries is bullish on FIVE stock

Meanwhile, as Five Below stock plunged after the earnings release, Jefferies said that it looks like a retail stock worth buying after the dip. FIVE shares reacting negatively to sales trends that slightly missed Street but are difficult to model in a COVID world. What matters is 1) comps were up big (+21% vs. ’19), 2) new store growth remains high (near mid-teens% YoY), and 3) Q3 outlook appears inline to slightly better,” said Jefferies analyst Randal Konik.

The brokerage has a street-high $300 target price for Five Below stock. Its consensus target price of $230 implies an upside potential of 22.4% over the next 12 months. If you are looking at a fast-growing retail stock, FIVE looks among the best retail stocks to buy in September.

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4. Macy’s (NYSE: M)

With a year-to-date rise of over 100%, Macy’s stock is outperforming the markets as well as other retail stocks by a wide margin. The company reported stellar earnings last month which triggered a buying spree in the stock.

Macy’s second-quarter earnings were better than expected almost across the board. The company reported sales of $5.65 billion in the quarter which were higher than the $5 billion that analysts were expecting. The company’s sales increased almost 59% from the corresponding quarter in 2020. While the rise came from a lower base as the COVID-19 restrictions took a toll on its earnings last year, they still looked impressive.

Macy’s also raised its guidance for the full year 2021 and now expects sales between $23.55-$23.95 billion in the year which is ahead of the previous guidance of $21.73-$22.23 billion. It also raised the adjusted EPS guidance to $3.41-$3.75 as compared to the previous guidance of $1.71-$2.12.

Macy’s looks a good retail stock to buy

While Macy’s is among the best retail stocks to buy, Wall Street analysts have a pessimistic view. The stock trades at an NTM PE of only 6.2x which is way below other retail stocks. If you are looking at a turnaround stock in the industry, Macy’s looks among the best retail stock to buy in September.

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5. 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.

The stock has been underperforming in 2021 after the steep rise in 2020. However, it has recovered some of the lost ground and is currently up almost 9% for the year. 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 or equivalent rating. Its median target price of $4,118 is a premium of almost 19% above current prices.

Amazon is a good proxy retail stock to buy

Earlier this month, Bernstein reiterated its overweight rating on Amazon expressing optimism over its ad business. “Amazon advertising was once again impressively strong, growing ~90% Y/Y, bolstered by strong eCommerce traffic over the last twelve months. … However, overall performance, margins, and the revenue guide were relatively weak, leading us to pull back our estimates (non-ad related). We remain positive on Amazon, especially as its ad business should provide a rising floor to earnings growth,” it said in its note.

Last week, Credit Suisse also reiterated its bullish bet on Amazon after the company announced a partnership with BNPL (buy-now-pay-later) company Affirm. As part of the deal, buyers on the platform would be able to pay using Affirm’s flexible payment options. To begin with, the optionality would be available for a few Amazon customers only but eventually, Amazon plans to offer the option to a broad range of customers.

If the two companies scale up the partnership, Amazon would be able to increase its sales as a lot of customers might want to opt for the BNPL option. After the recent underperformance, Amazon’s valuations look quite reasonable and it looks among the best retail stocks in September. The stock is looking strong on the charts also after crossing the 50-day SMA.

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