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5 retail stocks to consider buying during this inflationary environment
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Updated: March 12, 2024
Retail stocks encompass a wide range of companies, from consumer goods to clothing to groceries. Not only do these companies tend to thrive when the economy is thriving, but they also give people the opportunity to invest in the companies they shop at every day.
But there’s some risk to investing in retail stocks. First, in a high-inflation environment like we’re experiencing now, retail companies have a lot of pressure on their bottom lines and can easily see their stocks suffer. Additionally, when people are worried about a possible recession, which is currently the case, people tend to spend less money on discretionary goods, which can further impact retail stock prices.
So should you stay away from retail stocks right now? Not necessarily. But it does mean that you should be picky about the retail stocks that you choose to include in your portfolio. In this article, we’re rounding up five of the best retail stocks to consider buying right now, as well as what can make them a good investment.
5 best retail stocks to consider
Amazon (AMZN)
It probably comes as no surprise that the retail giant Amazon is on our list of the best retail stocks. Like many companies, it has seen its stock price decline over the past year. But in the past month, it’s been back on the rebound.
Our one FAANG stock on this list, one of the things that makes Amazon a good investment is that so many people rely on it for most of their shopping. Sure, the company sells discretionary goods that people may spend less on due to inflation or a possible recession. But it also sells durable goods that people spend money on no matter what, especially thanks to its abundance of grocery and household goods.
Amazon has a positive performance outlook for the short term and is expected to see a price increase of an impressive 46% over the next year.
Dollar General (DG)
You might be surprised to see Dollar General on a list of the best retail stocks to invest in. But this discount retailer, with its headquarters in Goodlettsville, Tennessee, actually has more retail stores across the country than Walmart and Target combined.
Because of their low prices, dollar stores have set themselves apart as go-to retailers for low-income households. Of course, those consumers are the ones often hit hardest by inflation, but that hasn’t hurt Dollar General’s prospects.
Unlike many retailers, Dollar General has seen its stock price increase over the past year. While it has a bleak short-term performance outlook, it’s expected to see excellent growth over the longer term.
Kroger (KR)
We’ve talked about how people tend to reduce their spending during times of inflation or recession. But one spending category where that doesn’t necessarily apply is groceries. In fact, many people increase their grocery spending during times of economic uncertainty as a way to reduce their spending on eating out.
Kroger has a lot going for it, including being the largest supermarket chain in the U.S. It’s been around for nearly 140 years, making it one of the most trusted names in the grocery and retail industries.
Kroger has generally seen its stock price increase over the past year, though it has since fallen from its 12-month high in April. The company’s stock price is expected to increase by roughly 16% over the next year.
Related: 6 best recession-resistant industries to invest in right now
Home Depot (HD)
Home Depot has had an interesting few years, largely thanks to the pandemic. While people were stuck at home, they found themselves taking on more DIY projects, meaning Home Depot and other hardware stores saw a boom. In fact, the company’s stock price has roughly tripled since the start of the pandemic.
Hardware stores can also perform well during times of high inflation or a recession. When money is tight, or the economy is facing uncertainty, people are less likely to spend a lot of money on services, including home renovations. Instead, they might decide to DIY more of those projects.
Home Depot’s stock price has fallen over the past year but has been on the rebound throughout the past month. The money has a positive short-term performance outlook and is expected to see its stock price increase roughly 16% over the next year.
Target (TGT)
Target is one of the largest retail stores in the country. Like its counterpart Walmart, Target is a go-to shopping destination for both discretionary and non-discretionary goods. So while people might not be spending as much on clothing and other discretionary items while inflation is high and the economy is facing uncertainty, it still sells plenty of goods that people need in any economy.
Target’s stock price has followed a similar trend as many others in the retail space. It’s down from where it was a year ago but has been bouncing back throughout the past month. Target has a positive short-term performance outlook and is expected to see its stock price grow by about 22% over the next year.
Other ways to invest in retail
If you’re interested in investing in retail stocks, there are no shortage of options to choose from. But you also aren’t limited to investing in only individual retail stocks.
Actually, there are several downsides to investing in individual stocks in general. First, investing in individual stocks opens you up to greater risk. You’re putting all of your eggs in one basket, meaning if the company (or companies) you’ve chosen to invest in has a bad quarter, your portfolio suffers considerably.
The second thing you might want to consider is that investing in individual stocks can also limit your earnings. There are many retail stocks, and it’s impossible to know which will perform best. By limiting your options to just one stock or a few stocks, you could miss out on investing in those that ultimately have the best returns.
Rather than investing in individual stocks, one option is to invest in diversified mutual funds and exchange-traded funds (ETFs). These funds can include dozens — or even hundreds — of retail stocks, meaning you can gain exposure to many assets in a single investment. Rather than limiting your returns to the performance of one or two retail stocks, you can enjoy the benefits of investing in the entire industry.
Should you invest in retail?
There are certainly pros and cons of investing in retail. As we’ve mentioned, retailers are often hit particularly hard by inflation as the price of goods and services goes up. Not only are goods more expensive for the companies to acquire, but individual consumers may cut back on their spending to protect their pocketbooks.
Retailers can also be more vulnerable to recessions than other industries. When people anticipate a recession is coming, they often cut back on their discretionary spending. And many retailers specialize in discretionary goods. Examples include clothing, sporting goods, and other non-essential goods.
But not all retailers are vulnerable to the economic cycle. Many retail stores specialize in selling durable consumer goods that people buy all year long. Examples include stores like Kroger, Walmart, and Target, which sell groceries and household goods that people buy no matter what the economy is like.
Another benefit of retail stocks is that it gives people the opportunity to invest in what they know. When people are just starting to invest for the first time, they may be cautious about where they put their money, and understandably so. Because many retailers are household names, people may feel more comfortable trusting them with their money.
As you decide whether or not to invest in a household retail stock, you may want to consider the values of the companies you want to invest in. Some companies — including and especially household names — might show strong financial performance, but operate in a way that mistreats their workers or contributes negatively to the climate crisis on a global scale. If these are issues that you care about, you might think twice about offering them more of your money.
The bottom line
Retailers are facing a difficult market environment right now due to inflation and fears of an impending recession. But that doesn't mean all retail stocks are a bad investment.
In fact, many retail stocks have continued to perform well despite the high inflation. Additionally, because they sell items that people need, many retailers aren’t as impacted by market downturns as other companies and industries are.
Before investing in any stock, make sure that you do your due diligence: Research widely, don’t invest more than you can afford to lose, and determine for yourself whether the company aligns with your values.
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Erin Gobler is a freelance personal finance based in Madison, Wisconsin. After seven years working in state politics, she left to pursue writing full-time. Now she writes about financial topics including mortgages and investing.
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