Closures of some locations have aided comparable-store sales in 2018 and 2019, and that could continue to be a theme in 2020, the firm said.
"We think struggling retailers alone will be enough to fuel better top line trends at the winning retail concepts due to share shifts," said Goldman analysts including Kate McShane and Chandni Luthra. "As strength in the top line persists, operating leverage should accelerate, especially for those companies finding efficiencies and lapping higher levels of spending."
Apart from Lowe's, Goldman recommended buying BJ's Wholesale Club (BJ), Costco Wholesale (COST), Target (TGT), Dick's Sporting Goods (DKS), Home Depot (HD), National Vision (EYE), Tractor Supply (TSCO), Walmart (WMT) and Williams-Sonoma (WSM). They suggested selling Advance Auto Parts (AAP), Bed Bath & Beyond (BBBY) and Genuine Parts (GPC).
Goldman also downgraded O'Reilly Automotive (ORLY) to neutral, expecting "more headwinds than tailwinds in 2020, especially as compares get harder as the firm begins to lap tariff inflation."
The "macro environment" will continue to support discretionary stocks and disposable personal incomes slow next year but continue to stay "constructive," the Goldman analysts said. Inventories "look in fairly healthy shape" while accelerating market-share trends are expected to continue. Still, uncertainty over tariffs are remaining on the sector, according to Goldman.
"While tariffs will remain an overhang for much of hardlines retail headed into 2020, we expect companies to begin lapping the effects certain tariff lists have had on gross margins and comp growth," Goldman said. "As companies lap these impacts, we believe (same-store sales) growth and gross margin could be affected."
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