Just as the e-commerce sector suffers one of its worst days in recent memory, many brick and mortar names are benefiting.
In sharp contrast to online vendors like Etsy and Stitch Fix, more modestly priced, brick and mortar options like TJX Companies (TJX) and Ross Stores (ROST) are rising.
“We expect Ross to gain market share this year and next as it likely returns to normalized comps faster than most peers,” Bank of America analyst Lorraine Hutchinson wrote in a recent note on the latter retailer. “The company has a long history of being able to grow in good and bad macroeconomic environments.”
The same focus on resilience in an inflationary environment led Loop Capital Markets to voice optimism on both Costco Wholesale Corporation (COST) and BJ’s Wholesale Club (BJ). The firm noted that consumers tightening their belts in terms of gas and food costs are often driven to both wholesale clubs.
Against a deteriorating macroeconomic backdrop, rising rates, and growing concern about consumer strength, the drive toward discount stores is even greater. Both Dollar Tree (DLTR) and Dollar General (DG) are driving towards 52-week highs. The continued push for both discount retailers is especially intriguing as earnings multiples for both discounters are quite elevated in relation to historical norms. However, in comparison to much of the rest of the retail market, the valuation levels are less than shocking.
Finally, shares of home improvement retailers Home Depot (NYSE:HD) and Lowe’s (LOW) are also a bright spot. Both retailers benefit from their defensive characteristics, a fact cited by Goldman Sachs in the bank’s recent review of top picks to insulate portfolios from macroeconomic pressure.
Additionally, home improvement names look likely to benefit from the dampening of demand for homes as interest rates rise.
“As housing cycles tough comps in the coming months, and now with industry supply constraints, we believe [year over year] declines could remain possible in the near term,” Baird analyst Timothy Wojs told clients on Wednesday. “Tough comps, now coupled with rising interest rates and affordability concerns, has soured residential investor sentiment recently.”
While this might seem to initially be a negative for the likes of Lowe’s (LOW) and Home Depot (HD), the red-hot housing market over the past few years means there are many relatively recent homebuyers that will be eager to make improvements rather than looking towards buying a new home. As such, demand for their products should remain buoyant.
Read more on Goldman Sachs’ top defensive picks at present.