At first glance, things seem rather bleak for the retail stocks category. Consumer spending is set to decline as the economy weakens. Inflation has caused folks to tighten their belts. The resumption of student loan payments will further crimp household budgets. And soaring interest rates make it harder to obtain affordable consumer credit.
That’s all before mentioning issues such as labor shortages, organized crime and theft hampering many retail chains’ ability to operate profitability. Investors are understandably selling many of their retail stocks thanks to these headwinds.
However, there are some silver linings in this storm. Stores selling discounts and essential goods are likely to fare well in a recession. And international diversification can help matters as well. Here are three retail stocks to buy, set to thrive in these unsettled times.
Dollar General (DG)
Discount retailer Dollar General (NYSE:DG) has had a miserable year. Shares fell from a peak of more than $250 in 2022 to just $106 now.
The firm has had troubles on multiple fronts. Its core shopping base has cut back expenses following the lapsing of certain Covid-era government relief and stimulus programs. Additionally, Dollar General arguably expanded its store base too quickly and ran into issues maintaining an adequate labor force and safe store operating conditions.
However, none of these problems are intractable. And, if anything, the worsening economy should bring shoppers back to Dollar General. Discount stores are known for their recession-proof qualities and will find plenty of appeal with shoppers trying to stretch their dollars this holiday season.
DG stock tumbled this year for good reason. However, the selling has now become a major overreaction, and investors should take advantage of the opportunity.
Kroger (KR)
In down economic times, consumers have to cut back on discretionary spending while prioritizing the essentials. Groceries are at the top of that must-have list.
Kroger (NYSE:KR) is well-positioned to appeal to middle-class shoppers. It has invested heavily in logistics and efficient operations in recent years to remain cost-competitive and deliver additional consumer value. With people potentially set to shift some of their food spending from restaurants to home cooking amid these trying economic times, Kroger stands to benefit.
And investors don’t have to pay much for this safe haven stock. KR shares are going for just 10 times forward earnings. Kroger also offers a healthy 2.6% dividend yield.
Fomento Economico Mexicano (FMX)
Fomento Economico Mexicano (NYSE:FMX), or FEMSA as it is better known, is a leading Mexican conglomerate. It participates in various industries, including beer, soft drink bottling and logistics services.
FEMSA runs retail stores too, operating more than 22,000 stores in total — and business is booming. The company reported a sizzling 15.3% same-store sales growth in its most recent quarter.
That’s not surprising, as Mexico’s economy has strong fundamentals. The manufacturing and reshoring boom is attracting tons of capital to Mexico, and average wages are rising. That gives consumers more money to come to FEMSA stores and buy various snacks, beverages and other basics. FEMSA has also built a growing financial services business within its stores, offering digital wallets, bill pay, remittance services and other perks from its convenience stores.
While the economy may be slowing in most developed countries, such as the United States, Mexico is enjoying an unusually robust financial picture. That has allowed its leading retail firms, like Femsa, to keep prospering during this unprecedented time. That makes FMX stock a great safe harbor in the retail sector today.
— Ian Bezek
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Source: Investor Place