Here’s how to set up your portfolio for the ultimate Black Friday trades.
We’re mere days away from the biggest shopping day of the year. That’s right, Black Friday is coming folks.
And while much of Wall Street is fretting over lower oil prices, the truth is that it’s a big plus for the majority of America. Oil remains below $80 a barrel, saving Americans billions with cheap gas and low heating oil.
Consumers’ energy costs are at multi-year lows. But much of the media, and even Wall Street’s finest, might be underestimating just what this “tax cut”means for the upcoming holiday shopping frenzy.
Because one thing remains true: We’re a nation of spenders, not savers. So, many Americans will be out or online come Black Friday, plowing their energy savings back into the economy. It also helps that unemployment is at the lowest rate in over six years.
More people, with more jobs, saving tons of money on energy costs, creates a perfect storm as we head into Black Friday.
One of the most obvious trades is the retailers. Many Americans still like to fight the crowds to get that seemingly great deal. And stores are opening earlier and earlier, with many unlocking their doors as early as 6 p.m. on Thanksgiving. Even the struggling Toys ‘R Us is trying to get a leg up by opening at 5 p.m.
Among the biggest Black Friday winners, first and foremost, will be Target Corp. (NYSE: TGT). This retailer has turned into one of the great investments of the year after shaking off data breach issues and naming a new CEO.
Target stock offers a 2.9% dividend yield. The company has the ability to attack the Black Friday market from all angles this year. This includes meshing its brick-and-mortar stores with its online strategy and offering services like online buying with store pick-up.
High-end retailers have proven to be great companies regardless of the economic environment. But with the middle class having some extra money in their pockets this year, Macy’s, Inc. (NYSE: M) and Nordstrom Inc. (NYSE: JWN) could see a boost in traffic as customers trade up.
Some off-price retailers have continued to excel despite the rebounding market. The millennials have proven that they still love the treasure-hunt experience. The TJX Companies, Inc. (NYSE: TJX) is one of the leaders in this space, operating TJ Maxx and Marshalls stores.
This stock has crushed the market over the last five years in terms of stock price performance, but has been a laggard over the last year. A strong holiday shopping season should be just what shares of TJX needs to break it out of its funk.
Online shopping behemoth Amazon.com (NASDAQ: AMZN) can win on a number of levels. It’ll be a prime (no pun intended here) destination for shoppers looking to splurge a bit, but Amazon will also be pushing its own hardware, such as the Kindle and its new wireless speaker, Amazon Echo.
And what will all these millions of shoppers be buying?
TVs will, again, be hot items. But the competition here is rather cutthroat with little to no brand loyalty. Meanwhile, tablets, smartphones and GoPros are a couple of the hottest items. Apple Inc. (NASDAQ: AAPL) and GoPro Inc. (NASDAQ: GPRO) look to be two of the best-positioned companies.
Apple shares are trading at below 14 times next year’s earnings estimates, it offers a 1.6% dividend yield and has enough cash to cover over 20% of its market cap. Its high-margin business supports a stellar 33% return on equity.
Meanwhile, after a poor secondary pricing, GoPro shares have tumbled over 10% during the last week. The company makes the popular compact HD video-recording devices. The stock doesn’t come without risks, as it does trade at nearly 60 times next year’s earnings expectations. However, with no debt and one of the hottest products of this holiday season, the stock could grow into its valuation sooner rather than later.
Meanwhile, video games have long been a holiday staple, meaning that the recent selloff in GameStop Corp. (NYSE: GME) could be overdone. Shares of GameStop got pulverized after a weak quarter, with its stock price down 14% over the last week. However, it still offers a 3.5% dividend yield. The big bear case against GameStop is the expected rise of digital downloads for games. This is a long-term concern, but digital downloads aren’t going to catch on overnight. The demand for physical games will remain high this holiday season.
That means Best Buy Co. (NYSE: BBY) could also benefit. It’s a major retailer of anything video-game-related. But the other reason to own Best Buy is that it is a big seller of GoPros. Nearly 20% of GoPro’s sales are to Best Buy.
Meanwhile, if you want a little less exposure to the retail space, but still like the video game angle, there’s Activision Blizzard (NASDAQ: ATVI), maker of the Call of Duty series, or Take-Two Interactive Software (NASDAQ: TTWO), which makes Grand Theft Auto and BioShock games.
What else will people be buying?
Naturally, many will be out gearing up for the winter weather. V.F. Corp. (NYSE: VFC) is one of the best plays around. The cold snap from last week that covered Buffalo with over six feet of snow can only help VFC, which owns such brands as The North Face, Timberland and Wrangler. Its products sell via major retailers as well as its own VF Outlet stores. VCF’s other brands — Vans, Nautica and Eastpak — will also benefit from a wealthier shopper.
With gas prices so low, more consumers will be traveling. That’s good news for major gas stations, which make their money from volume. More travel means more customers in their travel stores buying the higher-margin snack foods and soda pops. Two of the players in this industry include CST Brands (NYSE: CST) and Casey’s General Stores (NASDAQ: CASY).
You will not want to miss out on what is sure to be one of the best Black Fridays in recent history. Even if you are not out shopping, get your shopping list of stocks ready for the top Black Friday plays.
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