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Costco, Walmart, and Target: The Best Retail Stock Plays?

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Improving business trend

Target (TGT), Walmart (WMT), and Costco (COST) have been adjusting their businesses to offer convenience and value as the threat of Amazon (AMZN) continues. Despite the heightened competition, these companies have managed to defend their market shares and report improved comps.

Kroger (KR) is another company that has had an impressive performance. During its fiscal first quarter, its digital sales rose 66%, while comps, excluding fuel, increased 1.4%.

Walmart and Target have both significantly ramped up their e-commerce businesses trying to match the services of Amazon. Costco, however, has stuck to its value game, which is working in its favor. The significant decline in the effective tax rate is also supporting these companies’ growth measures and cushioning their earnings.

While these retailers impress with their comps, earnings, and digital sales, their margins are restricting the upsides of their stocks. Their growth is coming at the cost of margins, which is an area of concern. However, Walmart, Target, and Costco are focusing on lowering costs and driving efficiency, which could support their margins in the long run.

How their stocks performed

Target and Costco have both seen their stocks rise so far this year. Walmart stock took a beating following the slowdown in its digital sales during its fiscal fourth quarter of 2018. However, it has taken several strategic initiatives that are expected to accelerate its e-commerce sales.

YTD (year-to-date) as of June 21, Target and Costco stocks have increased 16.7% and 12.8%, respectively. Walmart stock has fallen 14.7% YTD. Kroger has risen 4.7% YTD, largely due to the 9.6% increase in its stock after its fiscal first-quarter results on June 21. The S&P 500 Index (SPY) has risen 2.8% during that period.

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