Ozva AdminThe holiday season is here, and that means plenty of deals await holiday shoppers in stores. But your local mall isn’t the only place to find a deal. Smart investors know that stocks are for sale too.
With the S&P 500 16% down, there are plenty of hot names for sale right now. Let’s take a look at three retail stocks that are selling cheaply this holiday season.
1. Williams-Sonoma: A Misunderstood Profit Machine
Williams-Sonoma (W.S.M. -1.05%) It may be best known as the maker of high-end housewares and cookware, but the company also owns Pottery Barn and West Elm. In fact, both brands generate more revenue than the Williams-Sonoma brand.
Like other home goods retailers, the Williams-Sonoma business has skyrocketed during the pandemic as remote work and COVID-19 lockdowns fueled more at-home spending. Unlike its peers, the company has continued to deliver strong results even as the economy has reopened and consumer spending has shifted elsewhere.
Comparable sales rose 8.1% in the company’s third quarter, helping drive a 50% increase over the past three years. That’s a staggering increase for a seemingly mature retailer. Williams-Sonoma is also very profitable with an operating margin of 15.5% in the third quarter and a target of 17.6% for the full year. This is a sign of the company’s pricing power and its ability to control costs through its vertically integrated business model.
Thanks in part to the company’s aggressive share buyback program, which has reduced outstanding shares by 11% over the past year, earnings per share rose 13% to $3.72.
Despite that rock-solid performance in the third quarter, the stock actually fell in the report, as management stepped back from its goal of reaching $10 billion in annual revenue by 2024, due to the likelihood of a recession. Still, the company reaffirmed its ability to win market share in a fractured housewares industry, no matter what the economic environment.
Williams-Sonoma is currently trading at a price-earnings ratio of less than 8. That’s a great price for a retailer with an aspirational brand, a proven business model, a strong e-commerce business, and a dividend yield of 2.5 %. .
2. HR: The reinvention of retail
RH (RH 0.28%), the high-end home furnishings company formerly known as Restoration Hardware, enjoyed a Williams-Sonoma-like heyday during the pandemic. However, its sales growth has been slower this year and revenue growth was flat during the second quarter.
Nonetheless, the company continued to deliver industry-leading operating margins of 24.7% in the most recent quarter.
HR may not be immune to macroeconomic headwinds. In fact, CEO Gary Friedman was one of the first business leaders to warn of a recession, but he has always been one of the most creative CEOs in the industry. Despite skepticism from Wall Street, he was able to get the company to switch to a membership model, charging customers a small annual fee in exchange for a discount on products. This has fueled the company’s sales growth and established a loyal customer base.
Now, Friedman is reinvigorating the company, launching a series of new HR-branded businesses, including a hotel and restaurant, plane and yacht leasing, and even launching a streaming service focused on architecture and design. . While the retail business will remain at the core of the company, these new additions should further distinguish the brand and help monetize the company’s loyal customer base with experiences as well as products.
In the meantime, investors can take advantage of a home furnishings stock with a long history of outperforming that is now trading at a price-earnings ratio of less than 10. RH shares should recover once the macroeconomic situation improves.
3. VF Corp: A discount-trading dividend aristocrat
VF Corporation (VFC 1.72%) It may not be a household name, but you’re probably familiar with its top brands. The shoe and clothing company owns Vans, North Face, Timberland, and Dickies, among other popular brands.
The stock has fallen sharply this year as it has cut guidance more than once in the face of tightening economic headwinds. This, however, presents a buying opportunity for investors, especially those looking for high-yield stocks. The shares are currently trading at a price-earnings ratio of 13 and offer a dividend yield of 6%.
While its performance this year has been disappointing as a stronger dollar, macroeconomic headwinds and a shift in consumer spending toward services have weighed on the company, VF recently reiterated its long-term guidance to 2027 and called for strong growth.
The company anticipates revenue growth at a mid to high single digit compound annual growth rate (CAGR); an operating margin of 15%, reflecting improved gross margins and leverage in selling, general and administrative costs; and total shareholder return, including dividends and share repurchases, with a low double-digit CAGR. To get there, the company aims to enhance its direct-to-consumer business, innovate within its existing portfolio of brands, expand into adjacent markets, and focus on strategic M&A.
VF Corp has a long track record of success as a Dividend Aristocrat raising its dividend for 49 years in a row. If it can hit those targets by 2027, the stock looks like an easy bet to beat the market in the next five years.
Ozva Admin
