The retail space is sure to see more than its fair share of challenges for 2024, a year that may finally see that long-awaited and prepared-for economic downturn. That said, I think the best-in-breed defensive retailers (such as COST, WMT, and FIVE) can continue flexing their muscles in the new year. Just ask the many Wall Street bulls who continue to stand by their “Buy” ratings.
First up, we have Costco, a wholesale retailer that went parabolic in early December to close off a spectacular 2023. In 2023, the stock surged more than 43%, and though shares have retreated more than 5% off their all-time high of $681.91, I believe Costco’s tailwinds will carry into the new year.
After the parabolic surge on the back of strong quarterly earnings, a pullback is only healthy and perhaps a “golden” buying opportunity for investors seeking a more modest entry point. As Costco navigates into a year of uncertainty, I remain bullish, as the firm seems well-equipped to deal with whatever the market throws at it.
On the one hand, Costco is a one-stop shop for consumers looking to get great deals on their groceries and other necessities. Costco members tend to get a great value for their annual memberships, especially during inflation or economic hardship. Should a recession and lingering inflation be in store for 2024, look for Costco to continue as a haven for consumers starved for bargains.
If the economy fares better and consumers become more willing to spend on discretionaries, Costco also stands to win big. Costco’s store layout is all about giving consumers a “treasure hunt” experience. With more disposable income and the mentality that Costco members need to buy more to make their annual memberships worthwhile, the firm has a lot to gain in a hotter economy that sees consumer sentiment shift higher.
The company has done a great job of mixing the “need” items (like necessities) with the “wants.” By offering intriguing new products, like gold bullion (a hot seller of late), Costco may very well be the company that’s positioned to win, regardless of where the economy heads next.
What is the Price Target for COST Stock?
Costco stock is a Strong Buy, according to analysts, with 20 Buys and six Holds assigned in the past three months. The average COST stock price target of $670.28 implies 4% upside potential.
Walmart (NYSE:WMT)
Walmart stock rose by around 10% in 2023, falling behind the S&P 500 (SPX), which clocked in a return of around 24%. The massive retailer has a robust grocery presence and an every-improving e-commerce platform. However, shares of WMT finished 2023 in a bit of a rut following the release of some modest quarterly earnings with a side of downbeat expectations for consumer spending.
Undoubtedly, the performance gap between Walmart and Costco begs the question: are more Walmart shoppers headed over to Costco amid inflation and economic struggles?
In a way, I do believe Costco is beckoning more consumers in its doors, with promises of $1.50 hotdog combos and more competitive prices. The shine of gold bullion may also play a minor impact, given that investor appetite for precious metals has surged in recent months.
In any case, I don’t think you can count Walmart stock out of the game just because it’s been outpaced by the likes of Costco. Shares of WMT may actually be in a spot to make up for lost time. Just check out TD Cowen’s recent note, which praised Walmart as one of its best ideas for 2024.
TD Cowen’s Oliver Chen is a fan of the company’s ability to play offense and defense. I couldn’t agree more. However, Walmart may wish to take a page out of Costco’s playbook by offering more “wants” (like gold) if it wants more rally power come the next big economic expansion.
Mr. Chen has a $188.00 price target on WMT stock, entailing 18% upside from here.
What is the Price Target for WMT Stock?
Walmart stock is a Strong Buy, according to analysts, with 25 Buys and five Holds assigned in the past three months. The average WMT stock price target of $180.79 implies 13.5% upside potential.
FiveBelow (NASDAQ:FIVE)
FiveBelow is a discount retailer that all discount retailers should strive to be more like. The firm doesn’t just offer great deals on a wide range of products, but it really seems to be hitting the spot with younger audiences. For this reason, I’m bullish on the firm and its growth prospects in the new year. The company, which has sold goods priced well above $5 for quite some time now, has a slogan that I believe tells the story: let go & have fun.
As a discount retailer that seems to be the mixture of a dollar store and a toy store, it’s no mystery as to why FIVE stock has done so incredibly well in recent years. The stock is getting closer to a new high, just over 16% shy of its mid-2021 peak. In 2024, I do believe FIVE below can eclipse new heights as the firm continues to fire on all cylinders in its corner of retail.
Finally, strength during the holiday season could help power an impressive quarterly beat. It’s not hard to imagine many cash-strapped consumers heading over to the local FiveBelow for festive gifts over the likes of pricier toy retailers. Either way, I believe such strength could carry over to 2024 following management’s confidence that came ahead of the holidays (its most recent guidance came in ahead of expectations).
What is the Price Target for FIVE Stock?
FiveBelow stock is a Strong Buy, according to analysts, with 11 Buys and two Holds assigned in the past three months. The average FIVE stock price target of $218.31 implies 6.65% upside potential.
Conclusion
Retail could continue to fare well for investors in 2024, especially when it comes to the Strong-Buy-rated top performers, which, I believe, could continue to take market share away from rivals that are lacking on the pricing competitiveness front. Of the trio of retail plays in this piece, analysts expect the most upside from Walmart (13.5%).
