What are the best retail stocks to watch?

What's on this page?

1. Retail stocks and what you need to know about the industry
2. How to trade or invest in retail shares
3. Best retail stocks to watch

Retail stocks and what you need to know about the industry

A retailer is a place that sells any product for use or consumption (not for resale). Retail products include everything from groceries, clothes, electronics and furniture to sports gear, books and toys. It can also include services like banking, insurance, and mobile network services.

The industry is massive, with a global market size of $20.29 trillion in 2020.¹ This value is expected to rise at a compound annual growth rate of 7% to $29.36 trillion by 2025.¹

The retail industry has traditionally consisted of brick-and-mortar stores and malls, but e-commerce stores have risen as many consumers’ purchasing place of choice. Commerce to physical stores has taken a hit in the last two years due to the Covid-19 and global lockdowns. Those retailers with a strong online presence, however, saw growth in certain categories, such as home do it yourself (DIY), electronics and groceries. The boom in e-commerce shows the adaptability of retail stocks, with the market estimated to reach the $4.2 trillion mark this year.²

Retail stocks have significantly outperformed the broader market, and the industry is considered one of the largest and adaptable industries in the world.

How to trade or invest in retail shares

1. Learn more about the retail industry
2. Choose whether to trade or invest
3. Create an account or log in and go to our platform
4. Place and monitor your trade

Before investing or trading retail-related stocks and exchange traded funds (ETFs), you need to understand the difference between the two methods.

Investing enables you to speculate on the longer-term results of a retailer or commodity. You’ll buy and own physical stocks or ETFs, and only make a profit if the share or ETF price increases. Plus, you could earn dividends if the company pays them and enjoy shareholder voting rights.

Trading enables you to speculate on the price changes of retail stocks, ETFs and commodities without owning any assets outright.

You can trade with us using spread bets and CFDs. Both are leveraged derivatives, which means you can open a position using a deposit (margin). You’d still get exposure to the full value of the trade, but this means profits and losses will be magnified. Always take care to manage your risk when trading on leverage.

Best retail shares to watch

1. Amazon
2. Home Depot
3. lululemon
4. Ulta Beauty
5. Walmart
6. Wayfair
7. Tesco
8. Target
9. Alibaba

Note that these stocks are not necessarily the best retail brands in the world, but rather based on various factors including market cap, future growth prospects, dividends and latest results.

Amazon

It’s founder, Jeff Bezos, travelled to space this year, perhaps a metaphor for the astronomical rise of global e-commerce platform Amazon. With a market cap over $1.7 trillion, Amazon is one of the most valuable companies on the planet.

Amazon has been looking to the future by investing in renewable energy and green technology and is working hard to make inroads internationally. The company has also expanded into advertising, entertainment and cloud computing.

Find out how to buy, sell and short Amazon shares

Home Depot

US megacompany Home Depot – with its large stores with considerable inventory - services both DIY homeowners and professional contractors. Perhaps due to the rise in DIY projects, Home Depot’s sales soared during the Covid-19. There’s also been a strong demand for housing in the US market, which has driven sales for homeware.

The company has dominated the home improvement market, partly thanks to its e-commerce presence. Home Depot’s comparable-store sales have risen year-over-year (YoY) by an admirable 31% in the first quarter (Q1) 2021.

lululemon

Canadian multinational lululemon found its niche in the competitive athletic clothing market by focusing on making yoga wear. It has since grown into offering clothing for a wider array of fitness endeavours, with the emphasis always on consumers who want to exercise in comfortable clothing.

While the closure of its brick-and-mortar stores early last year due to Covid-19 damaged the retailer’s results, they have since recovered. Revenue has risen by 24% YoY in the company’s Q4 thanks to a near doubling of sales in direct-to-consumer channels.

This could be due to more people switching to home exercise (as opposed to the gym) for good, as well as more people seeking comfortable clothing as opposed to office wear.

Ulta Beauty

US company Ulta Beauty became successful by offering in store salon treatments to customers, then selling products off the back of the experience.

Ulta’s sales were impacted by less in-person shopping due to the Covid-19 (Q4 sales dropped by 4.6% YoY). However, it is expected that the continuing rollout of the vaccine is likely to bring the beauty company back to healthy earnings as consumers venture out again for in store treatments.

Walmart

Walmart is the largest retailer in one of the biggest shopper markets – the US. Their rise is contributed to a model of offering low prices and its vast number of store locations.

Walmart has a strong e-commerce presence, and sales rose during the Covid-19. Its grocery pickup and delivery services mean shoppers don’t have to risk going to crowded stores, and these continue to be highly successful. In fact, the Covid-19 helped drive sales up by 97% in Q2.³

Wayfair

Unlike other companies listed here, Wayfair was posting huge losses before the Covid-19 due to its massive advertising spending that yielded no return on investment. However, as Americans focused on their homes during Covid-19 lockdowns, this massive spend on marketing started paying off.

Wayfair reported a profit of $273.9 million after a long string of quarterly losses.⁴ Its model of selling furniture online proved hugely popular during lockdown and has put the company squarely into the black. The company has over 22 million items on sale across five websites, with operations in Canada, Germany and the UK, and posted a third straight quarter of triple-digit profit growth, with its active customer count jumping 54% to 31.2 million.

Target

General US merchandiser Target offers everything from food to apparel, home decor and electronics. The company posted a very healthy Q1 this year, with 23.3% revenue growth and $2.1 billion in net income due to Americans focusing more on their homes during lockdown.

Target stocks benefit from relatively low same-store sales growth expectations, a strong balance sheet, a top-tier management team, a long-term record of dividend growth and an attractive valuation.⁵ Online sales growth, store openings and brand partnerships could serve as bullish catalysts.

Tesco

Tesco is a UK-based multinational food retailer. It offers online retailing, brick-and-mortar supermarkets, and a private-label brand of products. Through its subsidiaries, the company also provides banking and insurance services and operates a mobile virtual network.

Though the company admitted to a slowdown in top line growth in 2021 amid easing Covid-19 restrictions, Tesco shares have bounced back from 2021 lows and look to be growing.

Tesco currently shows strong e-commerce profits, a restructured business model with its departure from its Asia operations, and its shares boast a dividend yield of 4.3%. It will also save money with lower Covid-19 related costs this year.

Find out how to buy and sell Tesco shares

Alibaba

The Chinese online retailer Alibaba has an impressive track record of growth, with a 5-year annualised earnings growth rate of 29% due to its unique business model of offering a global e-commerce market to small enterprises and individuals.

By focusing on small enterprises, Alibaba is able to offer a vast variety of goods to a large assortment of consumers. However, its stock is down more than 20% due to concerns about big tech antitrust crackdowns in China and increased regulatory scrutiny of Chinese companies in the US.

Nevertheless, Alibaba is focusing on investments that will expand its user base and increase usage of its platforms and it is to remain the market leader in cloud services and e-commerce in China.

Find out how to buy, sell and short Alibaba stocks

Why do people trade and invest in retails stocks?

• Although retail stocks tend to be more volatile that the broader market, they also regularly outperform the broader market
• The industry has managed to adapt during the global lockdowns, and will grow with the rise of e-commerce
• Retail stocks will reach an estimated $4.2 trillion in value this year, and is considered one of the largest and adaptable industries in the world

Retail shares summed up

• The retail industry is large, yet highly adaptable
• The Covid-19 has damaged brick-and-mortar stores, but increased the popularity of e-commerce
• Some of the most-watched retail stocks include Alibaba, Tesco, lululemon, Walmart and Ulta Beauty
• You can trade or invest in retail stocks with us

Source:

1. Yahoo! Finance, 2021
2. Forbes, 2021
3. Techcrunch, 2021
4. Fortune, 2021
5. USNews, 2021