4 retail stocks every investor should own: Bernstein

Investing.com -- In a research note this week, Bernstein analysts identified four retail stocks that they prefer, stating that market uncertainties have created a "unique set of opportunities."

The firm explains that the companies stand out in a landscape of shifting consumer behavior, elevated labor costs, and e-commerce expansion.

With an emphasis on value, profitability, and growth potential, Bernstein is bullish on Walmart (NYSE:WMT ), Costco (NASDAQ:COST ), Dollar General (NYSE:DG ), and Lowe's (NYSE:LOW ).

"In times of change, we prefer companies that offer value to consumers (e.g., WMT and COST), that have meaningful growth runway (e.g., COST & DG in terms of store growth and LOW in terms of growing Pro sales), and that have a clear path to improve profitability," they write. Mass/Club Retailers: Walmart and Costco

Walmart is Bernstein's top pick, rated Outperform, with a price target of $95. The analysts expect Walmart to leverage its scale to offer value to consumers while growing profitably in e-commerce.

"As WMT's investments in omni-channel start to pay off, we expect its EBIT growth to meaningfully outpace sales growth," Bernstein noted, with their FY28 EBIT estimate sitting 15% above consensus.

Costco, which is also rated Outperform, has been assigned a $1,016 price target. Despite its premium valuation, Bernstein sees long-term potential in the company's international growth.

"We believe its international growth potential is underappreciated, which can support consistent earnings growth for decades to come," the analysts stated.

However, the firm is less optimistic about Target, assigning it a Market-Perform rating with a $168 price target. While some near-term upside is expected, Bernstein cautions that "its categories are more exposed to e-commerce," and the company may struggle to grow profitably in that space. Dollar Retailers: Dollar General

Bernstein rates Dollar General Outperform with a price target of $98, highlighting store expansion and gross margin improvement as key growth drivers. Despite recent operational challenges, the analysts remain bullish.

"We see meaningful store growth and gross margin expansion potential," with their FY27 net sales forecast 4% above consensus.

In contrast, Dollar Tree (NASDAQ:DLTR ) DLTR earns only a Market-Perform rating due to uncertainties surrounding its Family Dollar brand. "If DLTR manages to sell or to divest Family Dollar in the near term (for a $0-$2B valuation), Family Dollar could drag on unprofitably for years if DLTR cannot find a willing buyer," Bernstein warned. Home Improvement: Lowe's

Among home improvement retailers, Bernstein prefers Lowe's over Home Depot (NYSE:HD ), giving Lowe's an Outperform rating with a $323 price target. The analysts expect Lowe's to increase Pro sales and expand its EBIT margin to 14.1% by FY27, outperforming consensus expectations.

"There are more 'LOW' hanging fruit growth opportunities," Bernstein noted, adding that Lowe's experienced management team—many of whom have prior experience at Home Depot—positions the company for success.

On the other hand, Home Depot receives a Market-Perform rating with a $451 price target. Bernstein is concerned about the challenges of serving complex Pros, a segment that is often loyal to existing suppliers. "Serving this segment can be margin dilutive," the analysts warned.

Bernstein's top retail stock recommendations reflect a focus on companies that can provide value to consumers, capitalize on long-term growth opportunities, and improve profitability.

Source: Investing.com