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3 Top Retail Stocks Set to Beat the Holiday Supply Chain Crunch

By Adria Cimino – Oct 16, 2021 at 6:00AM

Key Points

  • Amazon is starting sales early to avoid a crunch leading up to the holidays.
  • Etsy’s business model means it doesn’t rely on massive shipments from abroad.
  • Target has taken several steps to ensure gifts arrive on time.

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They'll stuff plenty of stockings -- and possibly lift your portfolio.

Analysts predict an increase in holiday sales, and that's great news for retailers. Sales could climb 7% to 9% year over year, Deloitte forecasts. But one thing could dash some of the joy: supply chain problems. The pandemic temporarily closed factories in countries such as Vietnam and Indonesia. And that's resulted in delays in delivering products to North America.

If retailers have trouble stocking their shelves and meeting demand, the post-holiday earnings season may not be so bright. On average, the holidays represent nearly 20% of annual retail sales, according to the National Retail Federation. But don't cross all retailers off your stocks shopping list. Three in particular are ready for the supply chain challenge -- and are likely to come out on top.

A woman smiles as she looks at her phone and carries packages through a park.

Image source: Getty Images.

1. Amazon

Amazon (AMZN -1.59%) launched "Black Friday-worthy" deals earlier this month. Like the traditional Black Friday, deals span all product categories and range from 10% to 50% off. Amazon also posted its series of gift guides -- from the holiday toy list to electronics and sports gifts. And throughout this month and November expect sales from specific brands on Amazon -- including Amazon's own products such as devices and even food.

This is a great strategy because it gives shoppers more time to shop -- and Amazon more time to fulfill orders. Most shoppers won't be thinking about supply chain issues. But when they see a good deal on Amazon right now and know this is part of Amazon's Black Friday, they'll probably go ahead and make the purchase.

Amazon shares haven't done much this year. They've gained only about 1%. But that's OK. Amazon has what it takes to push the stock higher over the long term: growing revenue and net income from its solid e-commerce and cloud computing businesses.

AMZN Net Income (Annual) Chart

AMZN Net Income (Annual) data by YCharts

I expect the 2021 holiday retail season to be another winning one for the company.

2. Etsy

Etsy's (ETSY -0.38%) business model could make it a winner through a holiday season of supply chain challenges. Here's why: Etsy doesn't depend on fulfillment centers and huge shipments from abroad to sell goods. Instead, the online platform connects independent sellers of handmade items with buyers.

In fact, around this time last year CEO Josh Silverman said this in an earnings call: "Our sellers, our businesses largely have won working from their home and they're not as constrained in terms of having a supply chain dependent on a few factories or having everything shipped through one or two fulfillment centers."

So, the very nature of Etsy's business means it's likely to do well this holiday season. Add to that Etsy's ability to keep customers coming back and the package for success is complete. In the most recent earnings report, habitual buyers increased 115% year-over-year. These are people who have purchased on six or more days and spent at least $200 in the past 12 months. The stock has climbed 21% so far this year. But strong holiday numbers may push it higher.

3. Target

Target (TGT -0.50%) has taken specific steps to ensure its ability to serve customers this season. First, the retailer anticipated supply chain issues and stocked up on products earlier than usual. Second, Target chartered its own container ship. Being at the helm means Target has more flexibility on the trip from international ports to U.S. ports. Target also works closely with transportation providers once the ship docks to make sure items make it quickly to stores.

So far, Target's strategy to manage the supply chain through the pandemic has worked. The company's inventory at the end of the second quarter was up 26% compared with the year-earlier period. So, it looks like the shelves won't be bare at Target this holiday season.

Importantly, Target is heading into the holidays in a position of strength. The company's annual revenue, annual profit, and return on invested capital are all at record levels.

TGT Net Income (Annual) Chart

TGT Net Income (Annual) data by YCharts

Target shares have gained 37% year to date. But the company's financial solidity and smart supply chain management are likely to give them a boost after the holidays -- and well into the future.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Etsy. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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