It’s a good time to be a shopper because companies like Amazon, Walmart and Target are keeping prices low.
But that’s terrible news for many other retailers, and for consumer products companies, whose goods they sell.
A bunch of S&P 500 stocks related to retail and consumer goods — like Macy’s, Campbell Soup, and Hormel — have more sell and hold ratings than buy recommendations.
It’s no secret that retail businesses have notoriously tiny margins.
Many companies tread water or even lose money for the first few months of the year and then make giant profits in the second half thanks to back-to-school and holiday shopping.
But the rise of Amazon and digital shopping in general has made life even more difficult for prominent retailers. Fewer of those back-to-school and holiday shoppers are heading to a physical location.
“Retail is being transformed. You’ve seen Sears go bankrupt,” said Kevin Miller, chief investment officer of the E-Valuator funds. “Many retailers and consumer products are having to play catchup online.”
Companies like Macy’s, Gap and Nordstrom are all expected to post anemic sales increases this year. That’s in large part because these companies are struggling to get more shoppers to buy online.
It’s not just Amazon and Walmart that present problems for consumer stocks. In the retail world, it’s often very tough for companies that are trailing market leaders to stand out.
Under Armour is a perfect example.
The apparel maker continues to face tough competition from rivals such as Nike and Lululemon, and that’s led B. Riley FBR Research analyst Susan Anderson to place a sell on the stock.
Miller said a trend toward healthier eating is also a big problem for the food companies. That’s another reason why Wall Street is so bearish about the likes of Smucker, Hormel and Kellogg.
A world of ‘haves’ and ‘have nots’
Estee Lauder said it had “double digit” sales gains online while Ralph Lauren posted digital growth of 20%. That’s proof that companies with strong brand recognition can hold on to loyal shoppers and not lose out to companies offering steep discounts.
“It’s a world of haves and have nots,” added Stephen Lee, principal at Logan Capital Management. “Home Depot, for example, has done a great job with mobile shopping.”
Lee noted that retailers with a focus on bargain hunters have continued to do well. He pointed to Five Below as a retailer that has had no problem getting shoppers to come to the physical stores.
With that in mind, it shouldn’t be a surprise that both Home Depot and Five Below are retailers that Wall Street analysts do like. Both of them have far more many buy recommendations than hold ratings — and no analyst lists either of them as a sell.