Strong employment, rising wages and the Federal Reserve interest rate cuts helped drive the shares this year, RBC analyst Scot Ciccarelli said in a note Thursday. And while those "levers" are still in place for the new year, job trends are likely to peak and there's more chance of pressure from higher tariffs to flow through into prices, he said.
Politics could also pay a factor, with Democratic candidates for president saying they'd roll back most or all of the recent US tax reductions, Ciccarelli said.
"For 2020, while the consumer should still be in pretty good shape, it would be hard to argue that risks haven't increase," he said. "Unless we come to a relatively quick resolution on today's trade tensions, we would expect more price increases to flow through to consumers in 2020 than what we experiences in 2019."
A solid and steady backdrop for housing is seen aiding home-improvement retailer Lowe's, The company should grow e-commerce in the second half of the year, he added.
Dollar Tree lost almost off its 2019 gains after a disappointing third quarter result and current-quarter outlook, but Ciccarelli said comparable sales as its Family Dollar unit are "now nicely positive" and margins are expected to improve. Advance Auto Parts should see strong industry trends and its shares are "one of the biggest risk/reward opportunities in our sector," the analyst said.
RBC is also "bullish" on Costco Wholesale (COST), which is still benefiting from its low-cost model that drives repeat traffic, he said. Dollar General (DG) is seeing strong trends in low and middle income consumers, while Five Below (FIVE) is a "premier" growth stock for retailers, Ciccarelli said.
He's also upbeat on Lowe's rival Home Depot (HD), which is "expanding its competitive moat," and CarMax (KMX) which is driving omni-channel developments to generate "incremental sales. Ollie's Bargain Outlet (OLLI) is seen rebounding in the first quarter from the disruption of store expansion while O'Reilly Automotive (ORLY) is also seen benefiting from trends in the industry, Ciccarelli said.
And Tractor Supply Co. (TSCO) has made initiative into price management and planning as well as deferred financing that "should continue to drive solid comp/earnings growth," he said.
Price: $119.95, Change: $+0.63, Percent Change: +0.52%
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