February 3, 2023

The winter holiday season is an important time for retailers, as many rely on sales during this two- or three-month period to support the slower times of the year. That means it’s an important time for investors, too, as holiday sales can yield a quick return on investment or a lower entry price for a long-term payout. These stocks could be part of a Sinterklaas gathering later this month.

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With that in mind, here are three major retail chains you might want to consider as the end of the year approaches. All three currently have a Moderate Buy rating.

Best Buy

As a chain store in electronics specialties, Best Buy (NYSE: BBY) is often a very popular shopping destination around the holidays. This year, the company expects earnings growth of about 6.87%, increasing earnings from $6.55 to $7.00. Unfortunately, this indicates that the stock has a downside of -4.8%. While the company has certainly lowered their guidance recently, that’s not necessarily a reason to ignore them this year.

First, BBY has a strong dividend yield of 4.16%, with an annual dividend of $3.52. These are impressive considering that the stock has been falling since about a year ago (when the stock hit its all-time high of $136.13 on Nov. 19, 2021). Still, BBY has seen a consistent dividend increase over the past 18 years. Thus, with a dividend payout ratio of 52.69%, investors purchasing shares of BBY can enjoy a small payout after the stock’s upcoming dividend payment on January 3, 2023.

Sure, BBY beat its most recent earnings estimate by $0.35 to get to $1.38 EPS, but it’s still lower than the same period last year. Indeed, the fourth quarter of 2021 had earnings per share of $2.08. Indeed, the stock sits slightly below its 52-week median and has a less than impressive current value of $84.54 per share. The downgrade could lead to the share price falling to $81.44, but a P/E ratio of 12.66 is more affordable than the market average (118.48).

It may be down more than 20% year-to-date from last year, but there’s still time for some last-minute earnings as we approach the week of Christmas. After all, the summer season is not necessarily a good period for electronics purchases. But if the rapid recovery that started just before November continues, the retailer could get the boost it needs just before the next reporting date, which is March 1.

Target Corporation

Target (NYSE:TGT) is a regular retailer to keep an eye on around the holidays, along with its direct competitor Walmart (NYSE:WMT). While they’re similar in-store offerings, Target may be the better bet this year, thanks to projected earnings growth of nearly 74%, with earnings per share rising from $5.71 to $9.93. That said, current earnings of $1.54 are nearly 50% lower than the same time last year, though it’s on a tear since the most recent bottom of Q2, 2022.

It may only be in the bottom 20% of its 52-week range, but a solid P/E ratio of 21.50, a decent 16.0% upside, suggests that while it has a lot of room to grow, but that it should have no problem hitting its next $185.07 price target. Sure, TGT missed its earnings estimate, by $0.61, in its most recent report (on Nov. 16), but meeting the new estimates should not be a problem by the next reporting date (March 17, 2023).

Target has a dividend yield of 2.75% with an impressive annual dividend of $4.32. The retailer has a very strong dividend payout ratio of 59.18% and the next payment is due just in time for the holiday season, on December 10. Most importantly, TGT has been consistently paying dividends for at least 50 years.

TJX Companies

TJX Companies (NYSE: TJX), is the parent company of brands you may be more familiar with, such as HomeGoods, Marshalls, and of course TJ Maxx. The company’s inventory, which focuses primarily on discounted apparel and homewear brands, has remained relatively stable at a time when many others have seen declines; and that’s probably due, at least in part, to consumers tightening their finances during the pandemic. So while other, full price, retailers certainly struggled, it’s a good thing that TJX is up more than 12% and 25% over the month and quarter, respectively; they are also up more than 5% YTD and nearly 13% year over year.

Indeed, the stock has a current value of $79.67 and is on track to pass its 52-week high ($81.17). In addition, the TJX has a healthy short rate up 3.7% – with a price target of $82.56 – and a comfortable expected earnings growth of 12.50%. This brings the EPS up from $3.12 to $3.51.

One of the main factors drawing investors to TJX stock is its dividend strength, which has grown over the past year. While it certainly doesn’t have second-to-last dividend quality, a 1.47% dividend yield is worth it; it is at least better than 25% of all stocks (which pay dividends). TJX’s dividend payout is a sustainable 41.11%, well below the $75 threshold. Finally, TJX Companies’ dividend payout ratio for next year is 33.62%, based on current earnings estimates. TJX made its most recent dividend payment on December 1.

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