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Top choices for the retail sector

It was a big week for the retail sector, with a slew of major retailers reporting earnings, from Walmart (WMT) to Target (TGT) and Home Depot (HD). This week, the University of Michigan’s consumer sentiment reading was also published, and it turned out to be lower than expected.

Argus Research Senior Analyst Chris Graja and Washington Crossing Advisors Senior Portfolio Manager Chad Morganlander join Market Domination to provide insight into how investors should navigate the retail sector.

Morganlander shares his thoughts on the current consumer power, which he says is “pretty strong”: “They have a big tailwind when it comes to savings. Wage inflation is rising – which also bodes well for consumption. full employment here in the United States, so we think it bodes well for big box retailers overall.”

Graja, who has a Buy rating on both Home Depot and Lowe’s (LOW), explains that home improvement retailers are in a good position right now: “These are good quality companies. They pay dividends, but the thing is, I don’t think we know exactly when the return will come. Another thing is that all we need to see is a slight sign of inflection. So I think the long-term thesis makes sense given Harvard’s leading rate of rebuilding activity.”

For more expert insights and the latest market action, click here to watch the full episode of Market Domination.

This post was written by Nicholas Jacobino

Video transcription

Welcome back.

We take a look at how to navigate the retail sector with today’s guide for Yahoo financial investors.

Another big week of earnings season has just ended, but there are still a handful of big retailers on board and joining us to discuss which companies are best positioned as we approach earnings releases over the next two weeks are Chris Graha Argus, Research, senior analyst, and Chad Morganlander, senior portfolio manager at Russian Crossing Advisors.

Uh, welcome to the show, both of you.

Chad, maybe I’ll start with you.

Hmm, maybe the bigger picture. Chad, your take on the consumer and their situation right now.

It was just interesting to go through earnings season and try to read the tea leaves exactly where you thought they were.

Well, some executives were impressed when I heard something like Uber and Lyft and how generally bullish they sound for the consumer.

But what was your such broad approach?

I think the consumer is quite powerful.

Uh, they, well, they had lots of ideas for saving money.

Uh, wage inflation is rising, which bodes well for consumption as well as full employment here in the United States.

Uh. We think this generally bodes well for sellers of aggregates or large packages.

Of course, some retailers will do much better, but there are others that will fail, in part because of the strong post-pandemic economic growth.

The normalization cycle is just around the corner.

Well, maybe on that front, Chris, I want to bring you back.

You know, I think the Walmarts, the world, are more in line with our idea of ​​what the value proposition is today.

We may have a little more difficulty with home furnishings retailers, which I know you serve as well.

Speaking of Home Depot and Lowe’s, I think you have a buy rating on both.

How, how do they fit into the current consumer environment?

Yes, II and I think the multi-year strategy is that a huge portion of the population has very low mortgage rates.

Uh, we saw from the apartment numbers that they weren’t moving.

So maybe a lot of baby boomers who are aging in place, and you have a lot of millennials that you know, will buy a house.

Well, it probably won’t be the house they dreamed of.

And I think this all means home improvement. Baby boomers will be upgrading their homes so they can stay longer, whether it’s showers or bathtubs, um, railings or other things.

Uh, a lot of people say, you know, we have a low mortgage, we’ll stay home.

They will likely do kitchens, bathrooms, and other things that will make their current home feel cozier.

So, you know, there may be some challenges in the near future, but I think it makes a lot of sense in the long run.

Well, that’s what I wanted to emulate with Chris.

You know what you’re describing, this kind of long-term trend?

Will we see this in upcoming earnings, or is this something investors should rather wait and see?

I mean, they are good quality companies and they pay dividends.

Um, and the thing is, I don’t think we know exactly when the turnaround will happen, and anyway, all we need to see is a little inflection sign.

So I think the long-term thesis makes a lot of sense.

Looking at, you know, Harvard’s leading indicator for redevelopment activity.

It will likely be later this year before we see a turnaround there.

But I mean, it’s a thesis that makes a lot of sense and uh, I think that companies will, you know, survive this and if the change, whether it’s from the Fed or elsewhere, happens a little sooner.

You know, you’re there with quality companies instead of chasing Chad.

I want to bring you here too.

Get your Home Depot version.

It sounds churlish about that name you say, listen, hmm, some short-term setbacks, but a reasonable place to be in the long run.

Normal.

And I totally agree with Chris, um, when it comes to Home Depot, uh, we have it in our growing dividend portfolio.

We have owned it for over five years.

It has very little debt.

Uh, it’s growing steadily and in terms of profitability, it has a high return on invested capital.

Uh, and like Chris, I reiterate that you want to be in this key position for the next three to five years.

When that turn comes in the housing market, this company’s stock will have a higher gap.

So, uh, we would be a buyer at this, uh, uh, from Home Depot.