It’s time of the year for an investor to put on the holiday hat and gift himself or herself a nice bunch of stocks that will add to the long-term value of the portfolio and give great returns. So, as an investor if you are looking at retail stocks, these three stocks are probably going to give you the most value –Whole Foods (WFM, Financial), Costco (COST, Financial) and Wal-Mart (WMT, Financial). What makes the combination of the three special is the fact that each of these specialize in a way of its own. Here’s why the stocks can light up your portfolio.
The King of organic food – Whole Foods Market
America’s healthiest grocery store needs no introduction. It has been a pioneer in the organic food space and completely revolutionized the concept of healthy food. Whole Foods is surely a popular choice among grocers, but the majority of the buyers don’t flock to its stores. The prime reason behind this is organic food is expensive. Again, many buyers aren’t aware of the advantages of organic food or how that’s different from processed food. To combat these issues the company has devised a nationwide promotional campaign for the first time ever to educate the consumers. Whole Foods launched informative videos about its practices and benefits over the internet that have attracted massive attention.
In recent times the company has been facing increasing competition for the smaller players of the space such as Sprouts Farmers Market and Trader Joe’s and even from retail giant Wal-Mart. But all this hasn’t got Whole Foods nervous. The very fact that other players are trying to enter the space suggests that Whole Foods is gaining grounds and the space is being perceived as a promising one. With the intention to expand its reach and be more visible and easily accessible to the customers, the company has been opening stores all across. Its efforts are surely trickling down to the bottom line figures. The company also offers one of the best return on capital.
The most promising warehouse-club – Costco Wholesale
Washington based Costco has been a champion in terms of growth in the retail sector, beating other mammoths such as Wal-Mart (owner of Sam’s Club) and Target (TGT, Financial) and even the industry as a whole. The company happens to be the biggest warehouse club with 450 plus locations across the U.S. Its business model revolves around granting annual membership to its customers who have to pay a minimum of $55 to be able to shop. The retailer focuses on sales growth and believes if that takes place, everything else will fall into place. Costco is also famous for the way it treats its employees – with care and humanity. Customers like what they see and how they shop at Costco. This year, more than 90% of buyers based in the U.S. and Canada renewed their memberships and more than 80% of buyers elsewhere remained committed to the company – that’s something!
To ensure the company keeps growing and sales keep on increasing, Costco is working on store expansions, since it believes number of stores is directly proportional to its customer base. With more and more stores the company will be able to reach out to a much greater number of buyers, automatically providing it the exposure that’s required. During the year Costco opened 29 new stores and last year it had opened 26 stores in 2013– very well in line with its plan of opening 150 stores by 2018. Next year the company plans to add another 31 stores. The company is also increasing its capex that will help fund e-commerce expansion, the desired store expansions, and also in pepping up its stores through remodeling.
The world’s largest retailer – Wal-Mart
The primary two reasons for considering Wal-Mart among the 3 stocks are – one, its e-commerce growth, and two, improving comps thanks to narrow-format stores. After a gap of seven long quarters the Arkansas based retailer reported positive movement in U.S. comps, thanks to the growth fueled by the Neighborhood Market stores. For the stores the comps improved 5.5% and for Wal-Mart U.S. as a whole comps improved 0.5%. Industry experts believe the positive numbers are suggesting a turnaround is on its way and that also quicker than expected. CEO Doug McMillon has been working hard to pull off the improvement and his efforts have started paying off. Turning to e-commerce, Wal-Mart has been actively building the platform to serve its customers better – the way they want and when they want.
The company may have cut down the full year guidance, but that shouldn’t scare anyone off. The near term hurdles in expanding sales may have taken a toll on the retail giant, but the upside potential in the stock should keep it floating. If we take a look at the stock price year to date, it’s trading close to its high and this clearly hints at renewed interest from investors. With things looking up for the retail giant, this seems to be a good time to consider the stock.
