Top picks in retail include Walmart (WMT), Tractor Supply Co. (TSCO), Dollar Tree (DLTR) and TJX Cos. (TJX), which owns low-cost apparel chain TJ Maxx.
"We are more guarded on the department stores, specialty retail and wholesale apparel," Goldman analysts including Jason English and Kate McShane said.
Headwinds that were described as transitory, including weather issues, the timing of the Easter holiday and the government shutdown hindered consumption growth so far this year, Goldman said, and discretionary personal income is slowing down and could ease back further next year.
"Macro indicators overall still appear accommodative for healthy levels of absolute consumption, but we appear to be past the peak of retail sales growth," English and McShane said. "We don't expect a dramatic recovery given uncertainty from tariffs looming large."
With forecasts predicting Federal Reserve interest-rate cuts, history suggest favor staples over discretionary retail when picking stocks, they said. "Our sector preferences within our broader consumer-retail coverage universe take on a decidedly defensive bent."
Goldman Sachs said they're "wary" of food within the staples segment because "under-investment has left the industry vulnerable," but Mondelez (MDLZ) is an exception. Also, Procter & Gamble's (PG) recent investments is "just beginning to fuel multi-year momentum," while Philip Morris (PM) has a top organic revenue growth outlook in its class because of its new tobacco products.
Also, Corona-maker Constellation Brands (STZ) is gaining secular market share in US beer, the analysts said.
Price: 114.52, Change: -0.24, Percent Change: -0.21
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