At first glance, the very concept of retail stocks to buy might seem the equivalent of burning your cash in the dumpster. With the Federal Reserve still concerned about the impact of stubbornly high inflation, the underlying narrative doesn’t seem supportive of consumer sentiment. At the same time, the back-to-school season may help lift certain relevant players.
Interestingly, Axios recently reported that back-to-school spending could hit $41.5 billion, up from $36.9 billion last year. Notably, the record for this spending category clocked in at $37.1 billion in 2021. With social normalization trends in full bloom, this year’s edition could potentially be robust. As well, a lift in college-related spending may also provide a reprieve for retail stocks.
Of course, you’ll want to be careful as economic woes have recently sparked layoffs, naturally crimping consumer sentiment. Still, given the importance of academics, these pertinent retail stocks to buy just might make it.
Microsoft (MSFT)
Before anyone jumps on their keyboards, I fully understand that consumer technology giant Microsoft (NASDAQ:MSFT) got rid of most of its brick-and-mortar retail stores. Nevertheless, it commands a strong digital presence. As well, the company’s Software as a Service (SaaS) business model is robust because of the near universality of its Windows and Office ecosystems.
Financially, Microsoft also makes great sense as one of the retail stocks to buy because of its stable profile. For example, the company’s Altman Z-Score clocks in at 8.97, indicating a very low risk of bankruptcy. As well, on a per-share basis, it prints a three-year revenue growth rate of 15.1%, outflanking 65.62% of its peers.
Analysts also dig Microsoft for its aggressive (and successful) venture into artificial intelligence. Just that initiative alone commands extraordinary relevance for the back-to-school season. Unsurprisingly, MSFT ranks as a consensus strong buy with an average price target of $391.52. This implies over 22% upside potential.
Apple (AAPL)
Also, before anyone gets on me for not immediately selecting traditional retail stocks to buy – that will come a bit later – Apple (NASDAQ:AAPL) is more known for its consumer tech prowess than its retail operations. Nevertheless, its brick-and-mortar presence still stands proudly. That’s the power of the Apple brand. No matter the troubles ailing the tech sector, the company finds a way to bounce back.
To be fair, AAPL is taking a beating. Over the trailing one-month period, shares fell nearly 9%. Basically, anticipation runs hot for its next product showcase, particularly the iPhone 15. If the company beats expectations, AAPL could soar higher. If not, well, circumstances might get ugly for a while.
However, given the vitality of the brand, it’s quite possible that Apple may perform well during the back-to-school season, especially in the higher-education realm. Therefore, it makes a case for this list of retail stocks to buy. Finally, analysts peg AAPL as a moderate buy with a $208.13 price target, implying 18% upside potential.
Amazon (AMZN)
One last tech juggernaut before moving onto the traditional retail stocks, Amazon (NASDAQ:AMZN) is well worth consideration. First, the appetite for e-commerce might not have peaked during the second quarter of 2020, when necessity forced an upswing. Instead, the percentage of total retail sales allocated to online transactions has steadily increased, from 14.4% in Q2 2022 to 15.4% one year later.
Further, with regards to back to school, college students may find themselves away from home for the first time. To get the books and other products that they need, they may order whatever they need from Amazon. Fundamentally, then, the company is one of the top ideas for retail stocks to buy. Also, while it’s not a value play, AMZN still represents a growth machine after all these years. In the past 36 months, the company’s sales expansion rate pinged at 21.9%, beating out 83% of its peers.
Lastly, analysts peg AMZN as a consensus strong buy with a $175.38 price target, implying 33% upside.
Walmart (WMT)
While brick-and-mortar retail stocks have suffered under the weight of inflation and other economic headwinds, some companies just might be able to survive the onslaught. One of them could be big-box retailer Walmart (NYSE:WMT). To be sure, Walmart is not 100% immune to a consumer economy downcycle. However, with its everyday low pricing and a sell-pretty-much-anything business model, WMT could be an interesting pickup.
Granted, some of its financial metrics are rather unremarkable. For example, Walmart prints a three-year revenue growth rate of 7%, which beats out 58.54% of sector rivals. That’s decent but not particularly great. It trades at 30x trailing earnings, which stands on the high side.
At the same time, it’s a consistently profitable enterprise. Further, its return-on-equity lands at 18.55%, above 75.76% of its peers. Turning to Wall Street, analysts peg WMT as a consensus strong buy. This assessment breaks down as 26 buys and four holds. Plus, the experts’ average price target is $178.32, implying nearly 14% upside.
Five Below (FIVE)
Arguably an ideal name among retail stocks to buy for the middle-to-high-school demographic, Five Below (NASDAQ:FIVE) is a discount retailer. Unlike your typical dollar store, however, Five Below features a wider range of products, mostly priced up to $5. However, its stores also offer select items that can range between $6 and $25.
Such product diversity may be important for households that don’t want to be seen going to traditional dollar stores. While it’s hard to put a quantitative metric on it, Five Below stores just have a different vibe. Essentially, they appeal to anyone looking for a discount, not just folks operating on a strict budget.
While FIVE doesn’t offer the greatest deal trading at nearly 37x trailing earnings, it does deliver consistent profitability. Also, it pumps out an impressive three-year revenue growth rate of 18.8%. Looking to the Street, analysts peg FIVE as a consensus strong buy. Their average price target hits $222.71, implying over 27% upside potential.
Dollar Tree (DLTR)
Ranking among the “true” discount dollar stores, Dollar Tree (NASDAQ:DLTR) deserves consideration for retail stocks to buy. Of course, this narrative requires a caveat: you must be a speculator. Since the start of the year, DLTR fell nearly 12%. Following the company’s fiscal second-quarter earnings report, shares plunged 13%.
According to CNBC, the pressures consumers face translated to more food and essential item purchases, particularly for Dollar Tree’s Family Dollar outfit. Unsurprisingly, that’s a trend impacting many other retail stocks, especially those in the discretionary sector. Due to the consumer behavioral pivot, management narrowed its outlook for earnings. Sadly, that action came at a cost to DLTR sentiment.
However, should conditions in the consumer economy weaken further, Dollar Tree should eventually emerge as a winner. People will almost certainly throw away reservations about shopping at a discount store if it means saving money. Lastly, analysts peg DLTR as a moderate buy. Their average price target stands at $158.50, implying 28% upside potential.
Best Buy (BBY)
While the riskiest idea on this list of retail stocks to buy, Best Buy (NYSE:BBY) may be worth a look for gamblers. A big-box retailer focusing mostly on electronic products, Best Buy initially suffered huge competition from Amazon. However, the company added an experiential element to its business model, leading to a remarkable recovery.
In addition, because the COVID-19 pandemic robbed so many people of social interactions, Best Buy may be a beneficiary as large groups of consumers eschew online channels for brick-and-mortar stores. Not only that, shipping and handling aren’t free. For folks wanting to get their budget down to a bare minimum, Best Buy stores offer an interesting alternative.
Right now, BBY trades at a forward earnings multiple of 11.93x, lower than 66.18% of its peers. Of course, the risk here is that the retailer has been suffering negative revenue growth recently. Still, if you really believe in the power of this year’s back-to-school season, BBY might surprise you.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.