Slowing inflation and generally strong first-quarter earnings results have investors feeling more optimistic these days. The Nasdaq Composite is up nearly 21% so far in 2023, a reflection of Wall Street's hopes that the economy might avoid a deep recession over the next few quarters.
There's no telling when the next bull market will begin, so the best strategy for investors is to focus on buying excellent businesses and holding the stocks for many years. That purchase decision is made easier when the business is primed for solid earnings results even through potentially rough selling conditions.
Tractor Supply (TSCO 1.73%) fits that description well. Let's look at three reasons investors might want to add this retailer to their portfolios today.
NASDAQ: TSCO
Key Data Points
1. Tractor Supply is gaining market share
Tractor Supply enjoyed fantastic gains in market share through most of the pandemic and avoided the worst of the growth hangover that's hitting rival chains today. Comparable-store sales are on track to rise by as much as 6% in 2023, management confirmed in late April, following last year's 6% increase. Walmart is calling for just a 2% increase in its U.S. business by comparison, and Target is predicting flat results this year.
Tractor Supply's growth will be further boosted by its expanding store numbers. The company is aiming to add about 70 new locations to its base in 2023 to push its total above 2,200 stores. Its robust e-commerce platform is contributing to sales gains as well.
2. Tractor Supply has dependable profits
A high proportion of its sales comes from essentials like animal feed and pet supplies, and demand for more-discretionary products declined since the pandemic. But Tractor Supply still enjoys high -- and surprisingly stable -- profitability.
TSCO Operating Margin (TTM) data by YCharts. TTM = trailing 12 months.
While both Target and Walmart reported weakening operating profit in recent quarters as consumers shifted their spending patterns, Tractor Supply is on track to post a third consecutive year of double-digit percentage margins. That success is likely to continue boosting shareholder returns over time, in part because it reflects pricing power and strong customer loyalty.
3. Tractor Supply has growth plans
Tractor Supply's first-quarter update in late April provided a cloudier short-term growth picture for shareholders. After a slow start to the spring selling season, investors won't know for sure whether the chain can still hit its 2023 sales goal until the next quarterly announcement in July.
The longer-term expansion picture is bright, though. Tractor Supply can add new stores to its base even as it boosts customer traffic at existing locations and through its online channel.
These moves should allow it to grow sales at a faster rate than the rural retailing niche. Most Wall Street pros expect revenue to rise about 8% this year following last year's 12% increase.
Sure, investors are looking for weaker gains in 2023 after years of elevated demand. But Tractor Supply is likely to keep growing through a tough selling environment, putting it in an excellent position for when the next cyclical upturn begins.
