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Should I Sell My Retail Stocks?

By Daniel B. Kline - Mar 16, 2020 at 11:50AM

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Store closures and temporary shutdowns seem inevitable due to the coronavirus and the recession it could potentially spark.

Social distancing to keep yourself safe during the novel coronavirus pandemic means you probably need to avoid going to the mall for the time being. Even if stores remain open, it's best to avoid going to them until the government provides enough assurance that the outbreak has eased.

Grocery stores and retailers that sell necessary household items, including Walmart (WMT -0.28%) and Target (TGT -0.47%), remain open -- and are thriving -- but many non-essential retailers may suffer. Beleaguered brands like Bed Bath & Beyond and Gap will see their turnaround efforts stall largely because their core merchandise isn't needed by consumers at the moment.

That creates uncertainty for investors in the stocks of these companies. Should you cut your losses and/or move money into the retailers who will clearly be the winners during the current crisis?

A store has a store closing sign on it.

The current crisis will force some retailers to close locations or maybe go bankrupt. Image source: Getty Images.

It depends on what you own

The strongest retail stocks are generally the ones that will do well during the novel coronavirus pandemic. Walmart, Target, and Amazon (AMZN -2.49%), for example, all sell things people need, and they're doing very well -- maybe even better than usual -- as people stock up.

Some strong retailers, however, will face major sales downturns during the upcoming period. Best Buy  (BBY -2.92%), for example, will likely see a sales slump due to consumers limiting discretionary spending. It's hard to see people buying new televisions, computers, or video game systems, even though they're stuck at home potentially for months.

That does not mean you should sell Best Buy. The retailer has built a strong omnichannel model, and while it will likely suffer until the pandemic passes, demand will build as time passes. People may not shop at Best Buy right now, but they will return when conditions improve.

Basically, nothing has changed about how you should look at your portfolio. The retailers that were weak before the pandemic began impacting daily life will be even weaker after. Chains that entered the crisis strong will survive and regain their places in the market when the world returns to normal.

The third class of stocks to consider are struggling retailers that appeared to have decent plans in place before the outbreak ramped up into a pandemic. When you evaluate retailers in the midst of a turnaround -- Kohl's and Macy's are good examples -- you should consider two things. First, will the loss of revenue impact the company's ability to execute its turnaround? And second, did you believe in the plan in the first place?

Remain calm and maybe don't look

This crisis has shown just how strong Walmart, Amazon, and Target are. These are brands that are well-positioned to succeed in boom times or recessions

The rest of retail, however, remains less certain, at least in the short-term. This pandemic will almost certainly cause some retail bankruptcies. In most cases, however, the current situation will simply speed up the process, not be the root cause of it.

Strong brands like Best Buy can weather a few bad months. The company has the digital infrastructure to sell and deliver what consumers need while they're not visiting stores. That won't make up for the sales lost in stores, but it does show that the chain has done a good job building its omnichannel capacity.

It's easy for this situation to panic investors, but it's important to address those feelings and then do the rational thing.

The companies that you believed in before the coronavirus pandemic will almost certainly be the ones that you believe in after it. You may want to buy more shares of the strongest companies as the market falls, but, for the most part, it makes sense to stay the course.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$121.58 (-0.28%) $0.34, Inc. Stock Quote, Inc.
$106.21 (-2.49%) $-2.71
Target Corporation Stock Quote
Target Corporation
$141.23 (-0.47%) $0.67
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
$65.19 (-2.92%) $-1.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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