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Top Retail Stocks to Watch Ahead of Black Friday

Top Retail Stocks to Watch Ahead of Black Friday

Peter Hanks, Strategist
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Retail Stocks and Black Friday – Main Talking Points

  • Black Friday is one of the most important days of the year for many retailers
  • Recent demand concerns have flared as retail sales data has disappointed and consumer confidence ticks lower
  • With the use of analytics and recent consumer trends, we can look for a few retail stocks that might outperform the broader market around Black Friday in 2019
  • Stocks to watch include retail giants Amazon and Target, while Lululemon and Nike also possess unique advantages

Keep reading to learn more about the overarching impact of Black Friday on retail stocks and global growth, and which retail stocks could take the lead in 2019.

The Holiday Season and its Implications for Global Growth and Retail Stock Investors

With the holiday season fast approaching, US consumers will look to open their wallets and spend their hard-earned cash on a wide array of products. On Black Friday alone, consumers are expected to spend more than $6 billion, taking advantage of very accommodative discounts. In the weeks to follow until Christmas, about 20% of annual retail sales will be tallied according to the National Retail Federation.

In 2018, Black Friday spending cruised to a record high $6.2 billion, but traffic has begun to weaken in recent years and retail sales headed into the holiday season this year have slipped – creating concern that spending may not live up to the growth witnessed in previous seasons.

black Friday retail spending year on year

Since consumer spending accounts for more than two-thirds of the US economy, a weak holiday season can cast doubt on the health of the sector and that of the broader economy. Investors have recently expressed fear over global growth concerns, and an underwhelming sales tally among US retailers would likely reignite those fears. That being said, there is data to suggest that while consumer’s tastes may have shifted, sales could prove encouraging nonetheless.

retail spending predictions this holiday season

Most notably, the rise of Cyber Monday has worked to erode Black Friday’s dominance as shoppers take to the internet to complete their purchases from the comfort of their own home. Evidenced by recent trends in consumer spending and this year’s holiday season spending forecasts from a variety of sources, online shopping has overtaken in-store shopping and will continue to outpace traditional sales. Therefore, while the optics on Black Friday look somewhat bleak, the broader holiday season could be on pace for another record-setting year, bolstered by Alibaba’s incredible Singles Day total of $38 billion.

Holiday Season Spending Per Consumer

Expected retail spending during black Friday

According to the National Retail Federation, US consumers are likely to spend $1,048 per person this holiday season – the most on record. If the forecasts come to fruition, the United States will double down on China’s optimistic health and wellness checkup on the typical consumer, an encouraging sign for the global economy in these uncertain times. With potential for a strong season, it becomes a question of which stocks have the most to gain.

Learn more about Black Friday and the stock market.

Top Retail Stocks to Watch Ahead of Black Friday

To be sure, the impact of the public’s transition to online shopping cannot be understated. Thus, Amazon (AMZN) could look to outperform its smaller brick and mortar counterparts like Nordstrom (JWN) and Gap (GPS). Accounting for roughly half of all US online sales, Amazon is in a unique position to profit from the shift in holiday spending preferences. AMZN has easily outpaced JWN and GPS in the year-to-date which has helped it to extend its outperformance of the broader retail sector over the last five years – a trend that could only accelerate given the growth predictions this season.

Amazon versus Nordstron,Gap, and S&P500

Source: Bloomberg

Elsewhere, research from Adobe Analytics suggests that retail giants may have the upper hand compared to their smaller competitors:

“While online giants will see revenue increase by 65%, smaller retailers will only enjoy a 35% boost. Large retailers (annual online revenue of over $1 billion) will be the clear winners on Black Friday and Cyber Monday, with smaller retailers (less than $50 million annual online revenue) failing to drive strong online traction despite the growing awareness of Small Business Saturday. Additionally, large retailers will benefit from higher conversion rates, with customers visiting their sites 32% more likely to convert versus smaller retailers (23%).”

Evidently, retail leaders like Amazon, Target and Walmart look to maintain and even extend their lead this holiday season, which could see their share prices outperform the larger retail sector (XRT) in the days and weeks to come.

Largest Retailers Lead Sector

Source: Bloomberg

A final consideration to be made is for retailers with a unique shopping experience that could draw more customers into the store. Lululemon (LULU) and Nike (NKE) are two such candidates while the former has created a unique shopping experience with yoga classes, food and coffee in some of their stores, creating a more robust shopping experience.

Lululemon and Nike vs Retail Chart

Source: Bloomberg

The unique advantage could see the two athletic apparel companies, particularly Lulu, extend their recent gains alongside the large retailers. Thus, seeking exposure in these retail stocks that find themselves with strong footing for the weeks ahead while looking to fade the broader sector would create a position in which the sector’s leaders are held, while hedging against a broader stock market selloff.

Download our free equities forecast to discover the technical and fundamental factors affecting stocks each quarter.

--Written by Peter Hanks, Junior Analyst for

Contact and follow Peter on Twitter @PeterHanksFX

Read more: Amazon Earnings and Consumer Appetite, Will Trade Wars Steal Christmas?

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