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3 Top Retail Stocks to Buy in December

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Dollar General, TJX Companies, and Canada Goose stocks look enticing heading into the peak retailing season.

December is a risky month for investors in the retail sector. Even a small operating stumble during this critical selling period, after all, could threaten a company's broader targets for the full fiscal year.

With that volatility in mind, below we'll look at a few retailers that stand out as strong investment candidates thanks to businesses that tend to grow no matter what's occurring in the wider industry. Read on to find out why Dollar General (DG 0.13%), Canada Goose (GOOS 1.03%), and TJX Companies (TJX -0.35%) look like attractive buys today.

The only dollar store worth investing in

Leo Sun (Dollar General): Dollar General is one of the two leading dollar store chains in America. Its main rival is Dollar Tree, which also owns Family Dollar. Dollar General opens most of its stores in underserved rural areas, while Dollar Tree and Family Dollar mostly focus on urban and suburban markets. Another key difference is the pricing -- Dollar Tree is a "true" dollar store, where everything costs $1 or less, while Family Dollar and Dollar General sell slightly pricier products.

Children pick out candy at a store.

Image source: Getty Images.

Dollar Tree's namesake banner has fared well against Amazon and Walmart, but its Family Dollar banner has been a dead weight on its growth. Dollar General isn't burdened by a struggling subsidiary, and it faces little direct competition across most of its lower-income rural regions.

That's why Dollar General's comparable-store sales rose for 31 consecutive quarters, and why it increased its store count by 6% annually to 15,277 locations last quarter. The company expects its comps to rise between 2.5% to 2.9% for the year, and for its revenue -- buoyed by new store openings -- to jump 9%.

Analysts expect Dollar General's earnings to rise 34% this year -- which is a stellar growth rate for a stock that trades at just 15 times forward earnings. It also pays a forward dividend yield of 1.1%. Therefore, investors looking for a company that thrives during economic downturns and is well-insulated from Amazon should take a closer look at Dollar General.

The rally isn't over for Canada Goose

Jamal Carnette, CFA (Canada Goose): It's understandable for investors to be wary of "missing the rally" on Canada Goose now that the stock has increased more than 400% in less than two years.

However, the coat maker's growth rates are supportive of the stock's run: In the recently reported second quarter, Canada Goose reported 275 million Canadian dollars in first-half revenue, 37% higher than in the prior year's period, and 91% higher than two years ago.

Bottom-line growth has been even better, as EPS has grown 370% from the corresponding period two years ago. Management has focused on higher-margin direct-to-consumer revenue growth, growing this channel at an annualized clip of 229% since the first half of fiscal 2017, which has allowed it to improve its heavily watched gross margin figure from 44.6% to 57.1%.

Metric H1 2019 H1 2018 H1 2017 CAGR
Wholesale revenue $201.40 million $172.00 million $136.90 million 21.3%
DTC revenue $73.60 million $28.50 million $6.80 million 229%
Total $275.00 million $200.50 million $143.70 million 38.3%

Data source: Canada Goose's 10Q. All figures in Canadian dollars.

Despite this success, the company maintains a large runway for growth. Currently, the company lacks the brand recognition of Tapestry brand Coach or Ralph Lauren, but it's strategically opening new three new flagship locations in North America to improve visibility and has recently added footwear to its product rolls by acquiring Baffin. This company is well on its way to becoming a lifestyle brand, and the stock has further room to run.

Off price and on target

Demitri Kalogeropoulos (TJX Companies): Investors have rewarded shares of TJX Companies, the owner of off-price retailing brands Marshall's, TJ Maxx, and Home Goods, for the company's improving operating trends. But the stock's rally in 2018 could easily continue well into the new year.

Two women shopping for clothes.

Image source: Getty Images.

Sales growth blew past expectations in each of the last two quarters, including with a head-turning 7% increase in the third quarter. That implies healthy momentum as the chain enters the fourth quarter. CEO Ernie Herrman and his executive team told investors that they have plenty of cash and a great inventory position headed into the key holiday shopping period, too.

Stepping back, the bigger picture looks even brighter for this retailer, which plans to use the combination of its treasure-hunt atmosphere, flexible stocking setup, and price leadership to keep sales marching higher even as e-commerce takes up a bigger portion of retailing spending. TJX Companies is popular with younger consumers today, and it has boosted traffic in each of the last 17 quarters in its key TJ Maxx and Marshall's franchises. These wins suggest the company is right to target a much higher global store footprint as it closes out its 23rd consecutive year of annual sales gains.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitrios Kalogeropoulos owns shares of Amazon. Jamal Carnette, CFA, owns shares of Amazon. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Tapestry. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.

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