Retail is a tough business, with low profit margins and cranky customers who expect a lot for the least amount of money. With the rise of a new Covid variant and high inflation rates, the space may not seem like the most attractive going into what’s usually the best few weeks of the year for retail companies.
Fortunately, there are a number of safe-haven plays in the space, largely in big-box stores offering consistent and low prices for customers.
With economic fears on the horizon, it’s hard to see many putting off investing in their homes. That may be why Oppenheimer Research still sees the home improvement space as one likely to thrive in the months ahead no matter what the economy does.
It’s no surprise that industry leader Home Depot (HD) continues to perform well, with shares up 55 percent in the past year on the back of a strong housing market. It’s also one of the few stocks to keep hitting new all-time highs even as the market digests the latest data.
Action to take: Shares are a bit pricey, but not exceptionally so, at around 26 times forward earnings. That’s about in line with the company’s historic performance. The company’s 20 percent earnings and 10 percent revenue growth over the past year is strong for the retail space. Investors could do worse than owning shares, especially with a 1.6 percent dividend yield.
For traders, the March $450 call options, last going for about $10.25, are an aggressive way to play retail with one of the top names in the space going into the start of next year. Look for mid-to-high double-digit profits.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.