I had become a bit of a fan of retailers last year, and now I am looking at the results—they are not good since then. Let’s consider major retailer Target Corp—in the last year their stock has declined about 41%. Their announcement of bad results and much worse than anticipated issues with inventory caused a recent plummet in the stock.
Major competitors are also down, some more than others. So what happened to the re-opening play that retail could have been?
Of course the myriad disruptions to the supply chain at numerous levels have caused delayed deliveries and shortages for all sorts of goods including emergency vehicles, infant formula, tampons, and many other products. Inflation has caused a drop in consumer buying power. And bad news from so many different quarters has led to a dip in the industry overall.
So is this a sector looking at a long period of problems? Well these kinds of issues do not go away overnight, but I continue to hold my retail plays for now: Costco (COST) [a rare exception, showing share price growth even in the last year], Amazon (AMZN) [an attractive play at the current beaten-down price], and Petco (WOOF) [down 25% over the last year] are three stocks where I continue to see long-term value.
However the consolidation trend that has left a handful of major players is probably not over. That’s a major reason why I recommend these kinds of retailers, as they are (in the US market) all holding major market share in their industries. Mid-size players like Bed, Bath and Beyond however (BBBY) and Best Buy (BBY) are having a very difficult time in many cases and even if they can avoid bankruptcy they are likely to become takeover targets at their current low share prices, as Kohl’s has become already.
Disclosure: Through personal holdings that I control and through investment LLCs in which I am a partner, I buy, hold, and sell stocks, bonds, ETFs, options, NFTs, and cryptocurrencies, not limited to but including some of those discussed in this newsletter.