Stick With Proven Winners as Retail Spending Slows

While the latest data shows that retail spending is up – rising 1 percent in the past month—the rate of spending has slowed. That’s an indicator that consumers will likely cut back on luxury goods, and focus more on buying basics where they can get reasonable prices.

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  • For investors, that’s potentially bad news for a number of retail stocks. However, some companies tend to fare well as they provide customers a variety of goods at inexpensive prices.

    With retail stocks already down so heavily on concerns over a slowing economy, now may be a time to buy ahead of a move higher when the economy recovers. One potential winner at a discount right now is Costco Wholesale Corporation (COST).

    This leading retailer is still down 15 percent from its all-time highs. Shares aren’t cheap at nearly 35 times earnings, but given that the stock was closer to 48 times earnings at its peak, it’s clear consumers will continue to pay top dollar for the retailer.

    Action to take: At current prices, investors can get a 0.7 percent yield, plus the company periodically pays bonus dividends. It’s a solid long-term brand with a strong balance sheet to weather today’s economic and retail storm.

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  • For traders, the January 2023 $600 calls, last going for about $16.25, can leverage a rally in shares in the second half of the year, likely to high-double-digit profits. This can be a bit pricey, so traders may want to try and be patient and catch the trade on a bad day for the stock.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.