Chronicle Journal: Finance

3 Retail Stocks for a Coronavirus Christmas

The market (SPY) received more good news on the vaccine front and was thrilled with President-elect Biden's pick for Treasury Secretary Janet Yellen. But soaring COVID cases and mix-economic news weighs on investor minds. That's why David Cohne thinks retail stocks such as Dollar General Corporation (DG), Walmart Inc. (WMT), and Target (TGT) are poised to gain in December. The vaccine is promising in the long-run, but soaring cases will likely lead to more people staying at home. This benefits companies such as Roku, Inc. (ROKU), RingCentral, Inc. (RNG), and Match Group, Inc. (MTCH).

As we end the Thanksgiving week, investors continue to grapple with long-term positive news and a near-term COVID-19 surge. 

There are now three vaccine candidates with strong trial results, after the University of Oxford and AstraZeneca (AZN) revealed that their vaccine candidate demonstrated up to 90% efficacy after two doses.

We also see an increased probability of a peaceful transition of Executive power in the US. The General Services Administration approved the Biden transition team to access government funds to formally start the transition process. Biden's selection of former Fed Chair Janet Yellow as Treasury Secretary was a bonus as the markets were thrilled with the news.

This is all against a backdrop of surging cases of the coronavirus that is pushing hospitals to the brink, making it difficult for investors to find stocks they can count on. As I wrote yesterday, we have one more month left this year, and December is fully centered around the holiday season. That means an increase in consumer spending that should benefit retail stocks such as Dollar General Corporation (DG), Walmart Inc. (WMT), and Target (TGT).

But first, let's take a look at the markets over the past few days; then, I will provide more insight on the stocks I just mentioned.

Market Commentary

The market started the week on a positive note as the University of Oxford and AZN revealed the success of its COVID vaccine. In addition, Pfizer (PFE) and BioNTech (BNTX) announced plans to file for an emergency use authorization with the U.S. Food and Drug Administration. This would allow them to have their vaccine available starting in December, which led to a positive day for all three major market indexes, with the Dow Jones Industrials leading the way with a 1.1% gain.

News broke Monday that Biden planned on nominating former Federal Reserve Chair Janet Yellen as Secretary of the Treasury. The market viewed this as extremely favorable news, as Yellen has shown she is accommodating to the market and has broad bipartisan support. Stocks soared on Tuesday due to the news, with the Dow Jones jumping 454.97 points to close at 30,046.24, a new record and the first time the index broke the 30K barrier.  

Stocks took a breather Wednesday, with the S&P 500 and Dow Jones down slightly after initial jobless claims unexpectedly rose to 778,000 in the most recent week, and personal spending fell 0.7% last month. Though the Nasdaq quietly hit a record level of 12,094.40 with a gain of 0.48%.  

Market Outlook

Amid this news, more than 2,100 deaths due to COVID were reported Tuesday. That was the highest one-day COVID death toll reported since early May. New daily cases haven't gone below 100,000 in the past few weeks, and we now have more than 88,000 COVID patients in hospitals. This will only worsen as more people travel and spend time with their families over Thanksgiving and into the holidays next month.

It might be another six to seven months before the vaccine will hopefully be available to a large portion of the population. In the meantime, we will be hearing a mix of positive news and concerns over rising COVID-19 cases. This could mean a temporary rally in stocks of beaten-down industries such as airlines and travel stocks, and other days we could see those same industries plummet as more cases of coronavirus are announced.

For the time being, we can look towards retail as a way to invest for December. Whether it is online or in stores with limited foot traffic, people will spend this holiday season. A lot of people have saved money from not taking vacations or spending on travel for work. So, I predict a large portion of the population will still be spending on gifts for the holidays..  

Dollar General Corporation (DG)

DG is an excellent stock for the holidays this year due to its low-cost items and during recessions with its low-priced must-have products. The stock soared earlier this year as consumers stocked up on products during the lockdown. While many retailers initially struggled during the initial lockdown, DG drove up sales with its product staples, low prices, and convenient locations.

The company is looking to grow even more by launching new stores and improving its existing stores' profitability. In addition, DG recently announced a new store concept, popshelf, that targets consumers with higher household incomes. These stores will include seasonal and home décor, health and beauty products, home cleaning supplies, party goods, and more, with 95 percent of items priced at $5 or less.

DG is rated a "Strong Buy" in our POWR Ratings service. It holds grades of "A" for Trade Grade, Buy & Hold Grade, and Industry Rank. It is also ranked #4 in the Grocery/Big Box Retailers industry.

Walmart Inc. (WMT)

WMT is another perfect stock for the holidays due to its vast selection of products that can be ordered online or bought in-store. While Amazon (AMZN) is known as the dominant e-commerce retailer, WMT is close behind and gaining steam with its own strong e-commerce platform. The retailer also offers two-day shipping on many items, something that requires membership on AMZN.

Consumers can order online and have items shipped to your home, or you can pick them up at the store. You can also shop in-store for food for your celebrations. Plus, the company is also known for its vast selection of low-priced products that should satisfy families' needs that have been negatively impacted by the pandemic.

The stock is rated a "Strong Buy" in our POWR Ratings system. It holds "A" grades Trade Grade, Buy & Grade, and Peer Grade, and a "B" in Industry Rank. WMT is also the #1 ranked stock in the Grocery/Big Box Retailers industry.

Target (TGT)

My third pick is WMT competitor TGT. While not as big, TGT still offers plenty of low-cost items that can be ordered online and delivered or picked up at stores if you've left shopping to the last minute. The stores also offer sizable grocery sections, where consumers can grab last-minute food and desserts for holiday dinners.

The company had a robust third quarter as earnings and revenues outperformed estimates. During the quarter, online and in-store sales rose 20.7%, while digital sales surged 155%. The company's curbside pickup was also very popular, increasing by more than 500%. Furthermore, its home delivery service, Shipt, increased by nearly 280%. This impressive performance should continue through the end of the year.

The stock is rated a "Strong Buy" in our POWR Ratings service. It holds "A" grades across the board in every POWR component, including Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank, plus its overall rating. TGT is also the #3 ranked stock in the Grocery/Big Box Retailers industry.

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DG shares . Year-to-date, DG has gained 40.22%, versus a 14.29% rise in the benchmark S&P 500 index during the same period.

About the Author: David Cohne

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.


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