Cookie-cutter stories aren’t sexy, but it’s good to have a few of them in your portfolio. These five reliable retail stocks fit the bill.
When most think of growth stocks, the thought that usually comes to mind is some sort of new, revolutionary technology or medical product—and, indeed, those are among our favorite names to look for and have represented many of our big winners over the years.
But one theme that many tend to overlook are cookie-cutter situations—i.e., retail firms that are able to post steady growth mostly by opening up new stores or restaurants over time. (The bias against these names is even more pronounced these days as in-store shopping is being replaced by e-commerce.) Even so, cookie-cutter stories are scattered throughout the annals of top-performing stocks in market history (think Home Depot, Costco or McDonald’s) because, while they’ll never have the rapid growth profiles of some hot, new technology name, they usually produce very reliable results, which means big investors are comfortable building positions.
The only, and I repeat, the only flaw I can see in this stock is that few investors know about it. Yet, it is making money hand over fist behind the scenes and it has been for years.
Why, long before COVID-19 hit, this stock was on a tear, handing investors 100% more profits than Amazon, Apple, Facebook and Google—that’s 230% to 76%, 105%, 16% and 32%, respectively.
This company’s market leadership will continue for years to come.For details, click here.
Here are five of the more reliable retail stocks today…
5 Reliable Retail Stocks to Consider
Five Below (FIVE) has a long runway of growth (it will likely be able to grow its store base 2.5x to 3x at least from here) but also best-in-class store economics (payback of new openings within a year). It continues to act great, and while we’re half-expecting a near-term pothole after the recent run, the stock just got going from a two-year dead period in September, so we certainly don’t think the run is over.
Floor & Décor (FND is another cookie-cutter story that’s caught my eye—not only is it set to grow its store count by 20% annually (it believes it has room for 400 locations in the U.S., up from 130 or so today), but it’s also a play on the new housing/construction boom that’s in effect.
We’re also still keeping an eye on Wingstop (WING), which we owned for a while last year in our Cabot Growth Investor advisory portfolio. At last check, management thought there was room for a whopping 6,000 locations worldwide (!) compared to 1,479 at the end of September, with plans for double-digit new store growth. Business went nuts last year, but the stock has been etching a new launching pad as investors see whether a return to economic normalcy will crimp growth. Beyond the next few months, this firm is aiming to be a top 10 global restaurant brand.
Then there’s Ollie’s Bargain Outlet (OLLI), which can grow its warehouse count at double-digit rates for many years and is similar to WING in the sense that it’s been building a base for a few months after a great 2020 to see if growth will continue (or if the pandemic artificially boosted it).
And Shake Shack (SHAK) is a restaurant with an OK history (profits never were consistent) but is storming back from pandemic-induced shrinkage last year and just this week said it’s aiming for a 45% hike in its company-operated restaurant count during the next two years.
We currently hold one of these reliable retail stocks in our Cabot Growth Investor portfolio, where we have an average return of better than 46% on our nine stock holdings—all of which we’ve recommended in the last eight months.
To learn the names of all nine stocks, simply click here.
Editor’s Note: This post is an excerpt from the latest issue of Cabot Growth Investor.