3 Top Retail Stocks to Buy and Hold for the Long-Term

NASDAQ: COST | Costco Wholesale Corporation News, Ratings, and Charts

COST – The retail industry witnessed a sharp rise in sales in the first half of 2021. With continued progress on the vaccination front, the industry should see solid holiday sales. Irrespective of near-term positives, the fundamental strength of retail stocks Costco Wholesale Corp (COST), BJ’s Wholesale Club (BJ), and Casey’s General Stores (CASY) makes them solid long-term bets.

The retail industry had to undergo several rearrangements to remain operational last year. However, with most of the population being vaccinated with at least one dose, brick-and-mortar stores have seen rising foot traffic. The U.S. Census Bureau reported a 15.1% year-over-year rise in retail sales in August.

Moreover, the National Retail Federation (NRF) upgraded its retail sales growth forecast to between 10.5% to 13.5% for this year. The retail industry’s solid comeback in 2021 is evident as the SPDR S&P Retail ETF’s (XRT) has a year-to-date gain of 40.4% versus the broader SPDR S&P 500 ETF’s (SPY) 14.8% return.

In addition to the short-term support from the upcoming holiday season and rising foot traffic, the fundamental strength of prominent retail stocks such as Costco Wholesale Corporation (COST), BJ’s Wholesale Club Holdings, Inc. (BJ), and Casey’s General Stores, Inc. (CASY) make them solid long-term bets.

Costco Wholesale Corporation (COST)

This multinational retail giant needs no introduction. COST typically sells dry, packaged foods and groceries, appliances, and electronics. The company also operates through its e-commerce website in several countries.

In July, COST entered into a collaborative venture with Uber Technologies, Inc. (UBER) to deliver grocery items door-to-door. With stay-at-home orders and lockdowns imposed in the past year, the demand for home deliveries has increased significantly. Given this backdrop, COST’s on-demand delivery facility might prove to be profitable.

For the fiscal fourth quarter that ended August 29, COST’s total revenue increased 17.4% year-over-year to $62.68 billion. This can be attributed to a 17.5% year-over-year increase in net sales to $61.44 billion. Net income attributable to COST came in at $1.67 billion, up 20.2% from the same period last year, while net income per common share was up 20.1% from the prior-year quarter to $3.76.

The consensus EPS estimate for the current year (fiscal 2022) of $12.07 indicates an 8.8% year-over-year rise. Likewise, a consensus revenue estimate of $212.33 billion for the ongoing year reflects an improvement of 8.4% from the prior year. Moreover, COST has an impressive earnings surprise history as it has topped consensus EPS estimates in three out of the trailing four quarters.

The stock has gained 26.6% over the past year and 19.3% year-to-date to close yesterday’s trading session at $449.35.

COST’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, which equates to a Buy rating in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

COST has a Stability, Sentiment, and Quality grade of B. In the 41-stock Grocery/Big Box Retailers industry, it is ranked #14. This industry is rated A.

Click here to see additional grades for COST (Growth, Value, and Momentum).

Click here to check out our Retail Industry Report for 2021

BJ’s Wholesale Club Holdings, Inc. (BJ)

BJ operates as a warehouse club operator in the United States East Coast. The company provides an assortment of perishable products, general merchandise, and gas services alongside other ancillary services.

On September 8, the company unveiled its list of new kid’s toys for 2021. As the holiday season is nearing, the company expects these new additions to contribute significantly to the company’s revenues.

BJ further expanded its footprint in New Hampshire with the opening of its 22nd club location at Seabrook on July 2, welcoming the Seabrook community with lucrative offers and experiences.

On June 3, BJ launched Citizen Pay, its buy-now-pay-later option for purchases over $99. The facility enables customers to pay for purchases in easy installments. Andrew Rostami, President of BJ Citizens Pay, said, “BJ’s members will now have access to modern, monthly installment plans that works for them so that they can make large purchases responsibly.”

In the fiscal second quarter that ended July 3, BJ’s total revenues increased 5.6% year-over-year to $4.18 billion. Adjusted EBITDA was up 1.5% from the prior-year quarter to $220.14 million. Adjusted net income and adjusted EPS came in at $113.32 million and $0.82, up 5.4% and 6.5% year-over-year, respectively.

Street EPS estimate of $3.11 for the next year (fiscal 2023) reflects a rise of 6.5% from the current year. Likewise, the Street revenue estimate of $16.86 billion for the next year indicates a 6.2% year-over-year increase. In addition, BJ has topped the consensus EPS estimate in each of the trailing four quarters, which is impressive.

BJ’s stock has gained 47.3% year-to-date to close yesterday’s trading session at $54.92. It has also gained 32.2% over the past year.

It’s no surprise that BJ has an overall grade of B, which translates to a Buy rating in our POWR Ratings system. The stock also has a B grade for Value. In the Grocery/Big Box Retailer industry, it is ranked #20.

To see additional grades for Growth, Momentum, Stability, Sentiment, and Quality for BJ, click here.

Casey’s General Stores, Inc. (CASY)

CASY operates as a convenience store chain providing freshly prepared foods, tobacco and nicotine products, and other items. It also provides motor fuel for sale on a self-service basis.

On September 28, CASY announced that it would buy 40 Pilot convenience stores at $220 million in cash from fuel supplier and travel center operator Pilot Company. The stores are expected to fit in with CASY’s fresh food services and enhance the company’s growth potential.

Earlier in September, CASY revealed its new breakfast menu. Fast and efficient breakfast services are becoming increasingly important in this fast-paced society. The company expects this new breakfast line-up to attract more customers.

In the three months that ended July 31, CASY’s total revenue increased 51.2% year-over-year to $3.18 billion. Adjusted EBITDA was up 2.3% from the prior-year quarter to $243.19 million. Net cash provided by financing activities stood at $265.16 million, up substantially from its negative year-ago value.

Analysts expect EPS to increase 5.5% year-over-year to $8.84 in the current year (fiscal 2022). Likewise, the consensus revenue estimate of $11.90 billion for the ongoing year indicates a rise of 36.7% from the prior year. CASY beat consensus EPS estimates in each of the trailing four quarters.

The stock has gained 8.2% over the past year and 7.4% year-to-date to close yesterday’s trading session at $188.45.

CASY’s POWR Ratings reflect this promising outlook. The stock has an overall grade of B, which equates to a Buy rating in our proprietary ratings system. CASY has a Momentum and Sentiment grade of B. It is ranked #21 in the same industry.

In addition to the grades we’ve stated above, one can see the rest of CASY’s grades for Growth, Value, Stability, and Quality here.

COST shares were trading at $447.75 per share on Friday afternoon, down $1.60 (-0.36%). Year-to-date, COST has gained 19.55%, versus a 16.94% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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