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Market volatility has emerged as a central theme of US President Trump's second term. CFRA Research equity research vice president Zachary Warring joins Catalysts with Madison Mills and RSM chief economist Joe Brusuelas to share two picks he thinks are well-positioned: Ross Stores (ROST) and Lululemon (LULU).
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
With tariff fueled recession fears rising, which retail stocks are built to last? Zachary warning, CFRA analyst joining us now with names. He believes our best position to weather some volatility. Zachary, great to speak with you. You sent us over two stocks here, both Ross and Lululemon. Let's kick it off with Ross. Where do you see this company is built to last?
Yeah, so Ross is, uh, just like TJ Maxx, they're both off price retailers. They're very, very well, um, insulated in in recession periods, um, or in a consumer slowdown because they offer lower priced goods, or um, you know, 30 to 60% below retail value. Um, we really like the company because of valuation. You know, TJ Maxx has a great business model, um, but their shares are, are pretty, um, you know, fairly priced at 28 to 29 times forward earnings. So, you know, you can get the same, uh, business model for, uh, a lower multiple at about 21 to 22 times.
And talk to me about a company like Ross in terms of the consumer it's exposed to within a recessionary environment. Is that a concern?
It is. Um, they're both, you know, both of these companies, um, they really tend to that lower income consumer, maybe middle income a little bit, but, um, you know, you really are, are a little more insulated because, you know, you might get some trade down in the higher income consumers looking to shop at TJ Maxx and Ross. So, um, I think, you know, as consumers continue to trade down in a recession, you'll, you know, you might get hit at the lower income, but you might gain some more middle-income consumers. Um, and so it kind of evens out. Um, you know, they're not fully insulated if, you know, a full recession were to happen, you would see some earnings, um, you know, lower estimates, but, um, we think that's why, you know, the valuation at Ross is very appealing.
You know, Zach, are you not worried about, um, producers who make their goods, say in Vietnam, being caught up in, not just tariffs, but the focus on transshipments, which has been a real emphasis of the administration during their first 100 days.
Yes, you know, we, we are, we do like companies that are out of China. We do think that, you know, the other Asian countries will are more likely to see some sort of, you know, tariff resolution and much sooner than China. We think China is kind of the key player, um, in these tariff debates with the administration. So, um, we like companies that are out of China. Um, we think it'll kind of turn out to be similar to his first term. We think, you know, the proposed tariffs on April second that were delayed now 90 days, we think those are unsustainable. Um, and we don't think there's any way that he can fight that many battles, um, at one time. So we really like companies that are out of China.
So talk to me about your next pick for us, Lululemon, which by the way, has been caught up in the, uh, huge Tick Tok trend of Chinese manufacturers saying that you can get Lululemon style leggings directly from manufacturers in China bypassing Lululemon. They had to put out a statement saying those videos weren't accurate. Are you concerned at all about a consumer kind of boycott against a name like that?
No, you know, we really like Lululemon, and we like it because they have moved most of their manufacturing out of China. Um, you know, it's not even on their top three or four list of countries that they manufacture their goods from. Um, so that's, you know, that's one positive. And, you know, we've already stated that we really think that the, the administration can't fight, um, the tariff front on all these different Asian countries at the same time. We think you're more likely to get resolutions out of the other countries than China. Um, and then, you know, we think this company has, you know, over the years, is, you know, kind of goes in and out of favor with investors. Um, but valuation here is just so cheap. Um, you know, shares trade under 20 times, which is typically a great time to buy shares. Um, and, and you know, the price is, is back to where it was just a few years ago already. So, you know, we really like the company. We think the brand is fine. They've continued to grow over the last 5 to 10 years. You know, they're not growing like they were, um, but their multiple shows that, and we don't expect their multiple to go back to what it was in 2020 or 2021 at 35 to 40 times P.
Yeah.
Yeah.
