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A Few Early Christmas Gifts for Retail Investors

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A series of announcements, from the latest consumer confidence surveys to projected holiday hiring, have the retail sector lined up for what could be a great winter for investors. Three retailers in particular -- industry leaders Target (NYSE: TGT  ) , Macy's (NYSE: M  ) , and Wal-Mart (NYSE: WMT  ) -- look especially attractive, just as they have for months now.

Back-to-school shopping, second only to the holidays for consumer traffic, was solid, posting a 3.6% industrywide jump in the all-important same-store sales results. Measuring sales at stores open at least a year is a bellwether of sorts for retailers, and the figures haven't disappointed.

The numbers
Seems odd to consider the holidays with it still being September, but the transition to fall means it's time retailers start planning for the biggest shopping season of the year. In addition to managing inventory and physically preparing stores, predicting personnel needs is key to this time of year. Seasonal hiring figures are a good indication of expected holiday revenues, and if early projections prove accurate, retailers will have a more than respectable Q4.

Target, Wal-Mart, and Macy's all expect to hire more seasonal workers than in 2011. Target's holiday hiring plans, at least at first glance, might appear underwhelming in comparison. Target announced it expects to hire between 80,000 and 90,000 seasonal employees, down from last year's 92,000. Bad omen, right? As it happens, Target kept 30% of last year's holiday temps as year-round employees. With an additional 27,000 (give or take) workers on Target's payroll to start the holiday season, another 80,000 (give or take) folks this year is a good sign.

Wal-Mart's plan to hire 50,000 holiday workers, along with Macy's 78,000, are both more than in 2011, too. Interestingly, Macy's CEO, Terry Lundgren, expects many of the seasonal folk will be used to support its online sales and service needs. The traditional retailer's commitment to its online initiatives is part of what makes Macy's such an attractive investment alternative.

Macy's 5.1% same-store sales growth in August, well above the 3.3% expected by analysts, is another reason it stands tall among retail clothing and accessory investment alternatives. Wal-Mart is certainly no slouch in the same-store sales department, either, posting a 2.2% jump last month in domestic revenues -- the fourth straight quarter of growth here at home for the mother of all retailers.

Following the Commerce Department's recent upward revision of Q2's consumer spending results, the Conference Board announced its Consumer Confidence Index on Sept. 25. Americans expect a better job market and economic climate in the coming six months, which dovetails nicely with the holiday shopping season.

Wal-Mart, Target, and Macy's aren't the only retailers expecting a solid Q4, so what makes these three rise above the rest? In addition to the aforementioned positive economic and employment indicators, the three industry leaders share a common theme -- they are outstanding values relative to their peers.

Macy's 12.1 P/E remains one of the lowest around, and that's after a 13% jump in share price over the past three months. Macy's can't match Nordstrom's (NYSE: JWN  ) recent quarterly revenue growth, but with $1.6 billion in cash and with a price-to-book value 30% less than Nordstrom's, it offers more growth potential. And Macy's 2.12% dividend yield is also one of the best around, ahead of Nordstrom's 1.96%.

As for Target and Wal-Mart, the growth and income opportunities for these two industry stalwarts remain untapped. Both sport extremely reasonable valuations relative to peers, and Target's 2.2% dividend yield is only slightly better than Wal-Mart's 2.13%.

I've stated on more than occasion -- and remain steadfast to this day -- that all three of these retailers are excellent opportunities for growth and income. Just don't wait too long; these gifts won't last forever.

If you want to see how Wal-Mart and other retail giants stack up, here's a Fool special free report that's sure to catch your attention. You can do some comparison investment shopping, beginning with our "Motley Fool's Top Stock Pick of 2012" analysis.

Fool contributor Tim Brugger currently holds no securities positions mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Related Tickers

10/21/2016 4:00 PM
TGT $68.23 Up +0.52 +0.77%
Target CAPS Rating: ***
JWN $54.13 Up +1.02 +1.92%
Nordstrom CAPS Rating: ****
M $36.51 Up +0.64 +1.78%
Macy's CAPS Rating: **
WMT $68.34 Down -0.39 -0.57%
Wal-Mart Stores CAPS Rating: ***