JPMorgan says these two retailers are its top picks for the holiday season
Costco and Target are expected to emerge victorious as retailers navigate another challenging macro environment this holiday season, according to JPMorgan. Analyst Christopher Horvers named the two retail stocks the bank’s preferred pre-holiday names in a note to clients on Monday. Despite continued macroeconomic headwinds, he expects Costco and Target to benefit from lower consumer trade in the months ahead. To be sure, Costco and Target have reported weaker traffic in recent months, with Target last week warning of a weak holiday quarter as sales slowed in late October. Shares of the two stocks are down around 8% and 31%, respectively, since the start of the year. But inventory issues from earlier this year appear to be easing at Target, and flattening food inflation could bode well for Costco going forward, Horvers said. “We believe the wide assortment of COST, TGT and WMT benefits a more frugal consumer who will consolidate purchases at fewer doors,” he wrote. Retail earnings that kicked off last week showed some companies were doing better than expected in an inflationary environment as supply chain issues eased and companies worked on the glut inventory that weighed on margins. While the season will pale in comparison to 2021, Horvers anticipates a solid holiday period based on historic standards. Along with Target and Costco, JPMorgan sees names like Ulta Beauty and food-focused companies including Walmart and BJ’s Wholesale as other winners of the holiday season. Auto parts dealers are also doing a strong defensive trade, Horvers wrote. “We continue to look to auto parts on the defensive end, where we remain bullish on AZO, GPC and ORLY given colder weather and more travel, especially relative to lower-income exposed “groceries” ( i.e. BJ and WMT) where inflation is plateauing to slowing and consumers are stressed and trading lower/lower,” he wrote. Among the biggest losers this season, JPMorgan sees headwinds coming for names like Best Buy, Bed Bath & Beyond and Wayfair. – CNBC’s Michael Bloom contributed reporting
