At first blush, the latest jobs report didn’t quite appear resoundingly positive from a consumer sentiment perspective, leading to a conspicuous selloff in retail stocks. Nonfarm payrolls in January rose by a seasonally adjusted 143,000 for the month. This tally came in below the forecast calling for 169,000 jobs. In addition, it was well off from December’s print of 307,000.
Nevertheless, some context is necessary. First, December represented an unusually strong month, with the labor market overall mostly firing on all cylinders. At some point, a natural ebb and flow is to be expected. Second, it’s fair to point out certain positives in the print. Most notably, the unemployment rate declined to 4%, which was lower than expected. Also, wages rose more than analysts forecasted, signifying underlying economic strength.
Drilling into some of the granularity, November and December employment numbers were revised upward by a combined 100,000 jobs. This increase potentially points to continued economic stability and a more favorable environment for retail stocks. Further, in terms of individual sector growth, the retail space added 34,000 jobs, with notable gains in general merchandise retailers (31,000 jobs added). Such robustness may indicate that consumers are continuing to open their wallets despite broader challenges.
It's also worth mentioning that the social assistance and healthcare sectors added 22,000 and 44,000 jobs, respectively. Such jobs typically fall under the essential services category, which implies stable employment — at least more stable than other sectors. Therefore, consumer-facing businesses can possibly rely on a steady stream of resilient dollars. With that in mind, below are three retail stocks to pick up on discount.
Even mighty Amazon (NASDAQ:AMZN) can have a rough day at the office, as its most recent fourth-quarter earnings disclosure demonstrated. To be sure, the actual print was strong, with highlights including net sales rising 10% year-over-year to $187.8 billion. Further, net income almost doubled to $20 billion. In other words, Amazon did some Amazon things.
However, when you’re known as a student prodigy, anything less than an A+ grade can feel like a disappointment. And that’s what happened with the guidance, which was more of a B- grade. Management guided Q1 operating profit to land between $14 billion and $18 billion, falling short of the average analyst estimate of $18.35 billion.
Nevertheless, investors should look at the bigger picture. For fiscal 2025, earnings per share should land at $6.32, per analysts’ consensus view. If so, that would mean that AMZN stock is trading at a forward earnings multiple of under 37X. Yes, it’s still a rich premium. However, it wasn’t that long ago that the trailing earnings multiple was well above the 50X mark.
On the top line, Wall Street is looking for sales of $698.61 billion in fiscal 2025. That would put the forward revenue multiple at around 3.5X, which while not cheap would make AMZN far more attractive. All things considered, Amazon ranks among the top retail stocks you can trust.
Long a favorite among retail stocks within the big-box category, Target (NYSE:TGT) over the years has lost some of its magic touch. No stranger to progressive ideals, corporate executives at the bullseye-branded retailer have attempted to at least influence broader opinion. Unfortunately, Americans aren’t the most receptive of populaces when it comes to elite institutions telling them what to do.
I have little desire to weigh in on the political drama that Target finds itself in. In a nutshell, many investors are upset at the backlash — and the financial losses — that the big-box retailer has suffered as a result of its “evangelism,” for lack of a better word. It’s a messy situation because now, both ends of the political spectrum are upset with Target.
Despite the ugliness, one silver lining exists: executives will now learn to keep their mouths zipped when it comes to political activism. They’ve discovered that such an approach is high risk, low reward.
On a financial note, any forward assessment should reflect this headwind being removed. For example, TGT stock is priced at 0.56X sales right now, which is relatively low. That’s a cheap valuation that can be trusted because the company is no hurry to vocalize its politics.
Easily the most speculative ideas on this list of retail stocks to consider, Five Below (NASDAQ:FIVE) is a discount retailer. As its name suggests, most of its products are priced at $5, with a small selection of interesting merchandise climbing to $25. A clear step up from (literal) dollar stores, Five Below broadens the consumer base to include those looking for compelling but still reasonable-quality deals.
Unfortunately, FIVE stock struggled badly in 2024, with the equity losing more than 52% in the past 52 weeks. Notably, in July of last year, former Five Below CEO Joel Anderson resigned unexpectedly, leading to concerns about strategic direction. On the financial front, the discount retailer suffered a decrease in comparable sales in the first half of fiscal 2024 despite an increase in net sales.
Still, with new leadership in place, Five Below may look enticing for the risk-tolerant speculator. In particular, the core discount retail business should cater to price-sensitive customers. Since many parts of the economy are still struggling with high prices, Five offers an extremely relevant solution.
Finally, it’s difficult to ignore the value proposition. Right now, shares are trading hands at 1.3X sales, That’s considerably lower than this period last year when the sales multiple stood at 2.99X.
