The SPDR S&P Retail ETF climbed 3.0% on Friday after the U.S. Census Bureau said retail sales in June were up 1.0% – marginally beating the Dow Jones estimate of 0.9%.
Evercore ISI dubs ‘Costco’ a top favourite
Consumer spending, the monthly report suggests, is holding its own in the face of decades-high inflation that topped 9.0% last month. And a way to play that, is Costco Wholesale Corporation (NASDAQ: COST), said Evercore’s Greg Melich on a CNBC interview.
They key here is that consumers love the value. Costco plays to a middle to high income consumer. They won millions of new customers during COVID and now their renewal rate has been record high since people love the shopping value.
Real sales, though, were a bit in the “red” last month, considering the figure is not adjusted for inflation that went up 1.3% in June on a monthly basis. Costco down roughly 8.0% year-to-date is one of Melich’s “top favourite names” in the retail space.
Why Walmart and Target didn’t make the cut
The membership-only chain of retail stores reported its financial results for the third quarter in May that easily topped Wall Street estimates.
Other names that Melich likes in retail include O’Reilly Auto Parts and Home Depot Inc (NYSE: HD). He is, however, not interested in the behemoths like Walmart and Target. Explaining why on “Fast Money”, the Evercore expert said:
When you have 40-year inflation, you need companies with pricing power. Walmart and Target fight in the middle of it in general merchandise with Amazon, which is seeing their margins go negative, given all the capacity they added.
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