I’ve made and lost money in retail stocks for a decade now, and I want to open with the lesson that cost me the most tuition: retail is the sector where “everyone shops there” and “good investment” are two completely unrelated sentences. I learned this the hard way holding a mall-based apparel chain in 2019 that I was convinced was undervalued because the parking lot always looked full. Foot traffic in the parking lot is not the same as foot traffic converting to margin, and that stock is basically a rounding error in my portfolio history now. So everything below survived my “does this actually print cash or does it just look busy” filter.
1. Costco Wholesale (COST)
Costco is the stock I get the most pushback on because everyone points at the 43x earnings multiple and calls it expensive, and sure, on a raw P/E basis it looks rich next to a grocery chain trading at half that. But here’s the thing nobody’s spreadsheet captures well: Costco isn’t really selling groceries, it’s selling a membership renewal habit, and that renewal rate sits above 90% in the US, which is the kind of recurring-revenue stickiness you’d expect from a software company, not a warehouse full of forty-eight-packs of paper towels. In its most recent quarter, comparable sales grew 6.6% once you strip out currency and gas price noise, and operating income climbed 11.3% year over year, which tells you margin is expanding alongside growth, not getting sacrificed for it. The company started the year with 914 warehouses, opened 14 in the first nine months, and has another dozen slated, so the growth runway isn’t some hypothetical, it’s a literal construction schedule. I hold this one and plan to keep holding it through every “it’s too expensive” cycle, because I’ve made that exact mistake selling a compounder too early before, and I’m not doing it again.
2. TJX Companies (TJX)
If Costco is the moat stock, TJX is the chameleon stock, and I mean that as the highest compliment. Off-price retail thrives specifically when consumers get squeezed, because that’s exactly when shoppers trade down from full-price department stores into T.J. Maxx and Marshalls looking for the same brands at a discount. First-quarter diluted EPS grew 29.3% year over year to $1.19, and gross margin expanded 1.8 percentage points to 31.3%, which is genuinely rare in retail, most chains protect margin by cutting costs, TJX is expanding margin while also growing units, adding 48 new stores in the quarter alone to finish with 5,262 locations. The detail I find most underrated: TJX is carrying 6% more inventory than a year ago, and instead of that being a red flag, it’s a signal they found an unusually good buying environment, because their entire business model depends on snapping up excess inventory from other retailers’ mistakes. When the broader retail sector struggles with overstock, TJX’s buyers are having their best year. It’s a wonderfully cynical business model and I say that with genuine admiration.
3. Walmart (WMT)
I know, I know, Walmart isn’t exciting. Neither is a mortgage payment, but you still want it handled reliably. The stock trades around 41x earnings now, which reflects a real shift, the market has stopped pricing Walmart like a grocery store and started pricing it like a logistics-and-tech company, and honestly the market’s right this time. The part most retail investors sleep on is retail media, Walmart’s advertising business inside its own platform is now generating high-margin revenue that’s meaningfully improving the earnings quality of the whole company, essentially turning a low-margin grocery empire into something with software-like profit pools bolted onto the side. Walmart’s also the stock I point to whenever someone tells me defensive names can’t also grow, historically it’s been the stock that shines hardest during downturns precisely because bargain-hunting behavior spikes when everyone else is panicking.
4. Five Below (FIVE)
This one surprised me, and I’ll admit I was late to it because “everything under $5, occasionally $10” sounded like a gimmick destined to get squeezed by inflation. I was wrong. Five Below currently carries a Zacks Strong Buy rank, with consensus estimates projecting sales growth of 19.6% this fiscal year and 8.9% the next, and the company has posted an average earnings surprise of 62.1% over its trailing four quarters, which is not a company quietly meeting expectations, that’s a company that keeps blowing past what Wall Street models it to do. The AI-inventory-management angle gets thrown around loosely in retail commentary these days, but Five Below’s operational execution genuinely shows up in the comp numbers, not just the earnings call buzzwords.
5. Ulta Beauty (ULTA)
I’ll be honest, beauty retail isn’t a sector I understood well until I actually dug into Ulta’s numbers, and now I’m somewhat annoyed at myself for not looking sooner. Sales growth is projected at 8.7% this year and 5.8% next, with a trailing four-quarter earnings surprise averaging 15.7%, under what the company’s calling its “Unleashed” strategy, which sounds like marketing fluff until you realize it’s translating into actual comp growth across every major category and channel they operate in. The loyalty-program stickiness here rhymes with the Costco membership dynamic in a smaller, more fashion-forward package.
The Honest Bottom Line
None of these five are lottery tickets, and if you came here hoping for the next stock that 10x’s in six months, this isn’t that list. What these five share is something I’ve learned to value more than excitement after a decade of doing this: pricing power, expanding margins, and management teams that keep beating their own guidance rather than just meeting it. Do your own diligence, size your positions like an adult, and remember that even the best retail stock can have an ugly quarter when consumer sentiment turns, because I’ve held through enough of those to know the difference between a bad quarter and a broken business matters more than anything in this list.