Investing in retail stocks can be a winning strategy in a volatile or stable market. These companies are necessary components of the economy and the strongest brands own a dominant market share in their respective industries. Even if the economy weakens, we all need to shop and purchase goods and products. Since these companies are so stable, their stocks tend to see little volatility and in some instances, even pay out a quarterly dividend to shareholders.
In the event of a market crash or pullback, retail stocks can provide a defensive hedge. These stocks tend to hold up better than other sectors like tech. You might think they are boring, but retail stocks can provide the protection your portfolio needs when things get ugly. These three stocks are worth adding as we inch closer to a potential market plunge.
Lululemon Athletica (LULU)
Lululemon Athletica (NASDAQ:LULU) is a Canadian retail company that designs and sells athletic-leisure clothing. It was founded in 1998 in Vancouver, British Columbia, and now has over 700 locations around the world. Wall Street analysts have an average price target for LULU of $466.11, which is more than 20% higher than the current price of the stock.
This brand has gained international acclaim and popularity despite having a somewhat checkered past. Lululemon first rose to popularity with its yoga pants and has since added everything from winter jackets to running shoes. It will have an international stage this summer when it designs the clothing and uniforms for Team Canada at the Olympic Games in Paris.
Lululemon’s revenue growth has been outstanding as the company has increased sales in sixteen consecutive quarters. It has a ten-year revenue CAGR of 20% and has seen net income grow from $1 billion annually in 2014 to $1.6 billion in the most recent quarter alone. Despite the growth, it is trading at its lowest price-to-sales ratio in history at just 4.8x sales.
Starbucks (SBUX)
Starbucks (NASDAQ:SBUX) is an American multinational beverage company that operates in more than 80 different countries worldwide. The stock has been a frustrating one to own and has returned a loss of about 21% over the past 52 weeks. It is currently trading near its 52-week low and is at the lowest end of the analyst price target range. The average price target is $103.05 which is about $15.00 per share higher than its current price.
This brand has become one that is synonymous with coffee and beverages. While the U.S. is the largest Starbucks market, the company might be more popular overseas. Last year, Starbucks reached its milestone of 5,000 stores in the Asia-Pacific region. Recently, it opened its 400th store in India, a market in which they are expanding aggressively. Indeed, Starbucks could be in for another wave of massive growth.
SBUX stock is trading at its lowest price-to-sales ratio in years at just 2.7x sales and 22x forward earnings. With SBUX, you’re buying low on a global company that is still expanding into new markets!
Onon Holdings (ONON)
More commonly known as simply “On”, Onon Holdings (NYSE:ONON) is a Swiss shoe company founded in 2010. It is a relatively new stock to U.S. markets after having its IPO in September 2021. Analyst price targets for ONON stock range from as low as $21.00 to as high as $52.84. The average target is $36.67.
Although you might not recognize the company name, you’ve likely seen the unique running shoes. The patented design is called CloudTec which led to the signature line being called On Cloud shoes. The shoe was so popular that Swiss tennis star Roger Federer became an early investor in On. Today, On is sold on every continent around the world and is the fourth-largest shoe company in the world by market cap.
The stock has had a good year already in 2024, returning 22.5% to shareholders. Because of this, the multiples have risen as well. ONON trades at 10.7x sales and 40x forward earnings. While it might be a pricy stock, it’s also growing its revenue at a 24% CAGR over the past three years. Long-term investors in ONON will likely find themselves on Cloud 9!
On the date of publication, Ian Hartana and Vayun Chugh did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.