Retail is getting increasingly competitive, making picking winners and losers in the sector extra difficult. And the lateness of 2019 Thanksgiving is shifting retail sales around. That makes it even harder for investors to evaluate retail trends.
Those things, however, haven’t bothered Citigroup. In fact, the broker picked Black Friday winners and losers before the shopping even happened. They have three ideas for investors.
“Let’s be honest. We can easily write [the holiday review] now—actually we wrote most of this a year ago,” wrote analyst Paul Lejuez in a research report published late Wednesday night. “Here’s what we would have written in a Monday review note after Thanksgiving weekend if we didn’t write it today.”
He says stores are becoming “extremely promotional,” pushing Black Friday deals earlier in the week. That makes it difficult to use Black Friday mall traffic as a barometer of success. The growth of online shopping has the same effect.
Instead of fretting, Lejuez is sanguine. He says investors can relax and watch sports this weekend.
He already has the stocks he likes for this holiday season. His top picks are Target (ticker: TGT), Five Below (FIVE), and T.J. Maxx parent TJX (TJX).
There is a theme to the selections. All are discounters. Target is, obviously a big-box retailer. Five Below sells things for, well, below $5. And T.J. Maxx is one of the original off-price retailers. That segment of the retail universe doesn’t face competition as intense as that department stores, for example, have to handle.
(And Five stores are well stocked with Frozen 2 merchandise, which won’t hurt December sales, he says.)
“And don’t forget about the week after Christmas, which is becoming more and more important according to most retailers,” adds Lejuez. Thanksgiving weekend represents approximately 10% of fourth-quarter sales—a large amount but not enough to make or break the quarter, according to the analyst.
And Black Friday sales don’t change the current reality in retail: There are good stocks in the right segments. The numbers back that up.
The three Lejuez recommends, for instance, are up almost 50% on average in 2019, far better than the comparable gains of the S&P 500 and Dow Jones Industrial Average.
Target leads the pack. Its shares are up more than 90% year to date.
Write to Al Root at allen.root@dowjones.com
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November 29, 2019 at 09:31PM
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