The past few weeks haven't been particularly great ones for the stock market, threatening the bullish effort that first got going a year ago. With talk of the end of rate hikes and a so-called economic "soft landing" that sidesteps a recession, a sustained bull market may still be in the cards. If that's the case, many stocks will be pulled higher.
And there's a handful of tickers positioned to lead such a bullish charge. Farm and garden supply retailer Tractor Supply Company (TSCO 0.82%) is one of these names. There are four key reasons why it's a superior pick for a resurgent economy.
NASDAQ: TSCO
Key Data Points
Four reasons the stock is a bull market buy
If you're not familiar with it, Tractor Supply operates nearly 2,200 stores in 49 U.S. states, catering to customers ranging from small-garden enthusiasts to full-blown farmers. You'll find everything from seed to tools to horse saddles to fence wire at its stores. While you'll find the occasional Tractor Supply in a somewhat urban setting, its locales tend to be found in rural areas where yards and farms are more common. The company's also parent to pet stores operating under the PetSense banner.
Farming is a niche market, to be sure, but a fragmented one that's been historically underserved. Tractor Supply is simply organizing this segment of the retail industry at scale and reaping the benefits of this scale. As noted, however, there are four specific reasons you may want to consider adding Tractor Supply stock to your portfolio now.
1. The retailer is resuming its pre-pandemic growth pace
Prior to the advent of the COVID-19 pandemic in early 2020, Tractor Supply was growing like a weed in an unkept garden. It established 80 new Tractor Supply stores in 2019, closing only one location that same year. That growth follows the addition of another 80 Tractor Supply stores in 2018.
For obvious reasons, the pandemic complicated and even interrupted this growth. It only opened 63 new Tractor Supply locations last year and isn't doing much better this year,
It's the same company, though, addressing the same market. Ergo, its growth should reaccelerate to its past pace soon enough. To this end, the retailer intends to establish on the order of 90 new stores per year beginning in 2025 until it reaches 3,000 U.S. locations.
2. Self-sufficiency is (still) relatively hot
But what's driving this growth? Lifestyle changes, mostly. The movement was already underway when the pandemic took hold. It would be naive, however, to pretend the impact covid had on food supply chains didn't accelerate consumers' growing interest in growing more of their own food; sky-high grocery prices are doing the same now.
Then there's the more philosophical lifestyle shift prompted by the pandemic. That is, people actually like spending time at home doing more quiet, relaxing activities like gardening.
These markets themselves aren't growing like gangbusters overall. For instance, Emergen Research believes the smart/indoor garden market is only set to grow at an annualized pace of 8.2% through 2030. Precedence Research expects the global gardening-equipment market to expand at an even slower average pace of 6.6% for the same time frame. That's not a lot.
As was noted, however, Tractor Supply is largely consolidating much of this market -- and its growth -- by setting up stores with deep merchandise assortments in underserved geographic markets. It could easily outpace overall market growth. Of course, a better economy should also make it easier for consumers to justify getting into the home-gardening habit.
3. Tractor Supply generates surprisingly consistent profits
Perhaps the most compelling reason to hold Tractor Supply stock is its consistent results even when it theoretically shouldn't be doing so well.
The graphic below tells the tale. The company's top and bottom lines remained in line with long-term norms in 2020 when the covid pandemic first began to spread. Growth for both has remained steady in the meantime too, including since early 2022 despite inflation rattling most households' budgets. Last quarter's revenue as well as net income were both record-breaking.
TSCO Revenue (Quarterly) data by YCharts.
Connect the dots. Farming and gardening are activities that create perpetual, reliable demand for tools and supplies. That's not apt to change in the future.
4. A fresh management team could bring new energy
Last but not least, many of Tractor Supply's executives have joined the company in just the past few years.
Chief Merchandising Officer Seth Estep assumed the role in February 2020, and Chief Financial Officer Kurt Barton has only had the job since February 2019. Chief Marketing Officer Kimberley Gardiner has only been with the company since mid-2022. President and CEO Hal Lawton has only been with Tractor Supply since January 2020.
Management turnover can also be a red flag, not the least of which is the uncertainty it injects into an operation. It runs the risk of leaving them unfamiliar with what makes this company's customers tick. In this particular instance, however, a bit of fresh perspective and some consumer insights from outside the farm and garden industry might be just what the company needs.
Solid enough even without a bull market
So Tractor Supply boasts more than enough positive arguments for owning it when the environment is bullish. What if, however, the market's backdrop sours? Even then, this is a ticker arguably worth owning.
The key is the nature of Tractor Supply's business. Consumers' growing affinity for self-sufficiency and home gardening is stronger than any economic headwinds that might start blowing again. Investors are starting to catch on to this dynamic too.
As their understanding of Tractor Supply's resilience grows, don't be surprised to see this retailer evolve into more of a safe-haven holding meant to defend a portfolio from marketwide weakness.
