Black Friday sales have been trending downward in recent years. But surprisingly strong U.S. retail sales in September and October have brought renewed optimism this year, which means there could be plenty of worthwhile stocks to buy before Black Friday.
Last year, in-store sales on Thanksgiving and Black Friday declined to $10.4 billion from $11.6 billion in 2014. On the bright side, online sales improved by 14%, and sales on Cyber Monday—the online version of Black Friday, the Monday after the Thanksgiving holiday—topped $3 billion for the first time ever. Overall, results were mixed as shoppers continued to shun brick and mortar stores for the comfort of their couches, a computer (or smartphone) and a credit card.
But Wall Street focused on the big in-store sales decline, and U.S. retail stocks suffered. The SPDR S&P Retail ETF (XRT), which tracks a basket of retail stocks and is heavily weighted in consumer cyclicals, tumbled 3.6% between the Thanksgiving holiday and Christmas, though its fall roughly coincided with the decline in the broad market.
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That said, not every retail stock fell on its face after Black Friday last year. As always, there were winners, and there were losers. With sales numbers perking up the last couple of months—October retail sales improved 0.8% month-to-month, while September sales were up an even 1% from August—it’s a good bet there could be a few more winners this time around.
Since we tend not to bottom-feed at Cabot, let’s focus on “Black Friday stocks” with charts that are already trending in the right direction. Here are three stocks to buy before Black Friday (and Cyber Monday):
Black Friday Stock #1: Amazon.com (AMZN)
This one’s a no-brainer. Amazon dominates Cyber Monday, as the e-commerce giant has expanded its discount deals from a day to a full week in recent years. A year ago, Amazon’s Cyber Monday sales increased 21%, well ahead of the 18% overall jump in online sales.
After a rough few weeks in late October and the first half of November, the stock has bounced off of lows around 719 to the 760s in the last few trading sessions. Though well below its 50-day moving average, I like AMZN’s momentum ahead of its biggest sales day of the year.
Black Friday Stock #2: McDonald’s (MCD)
Compared to Amazon, McDonald’s feels like a dinosaur.
But more than half the country still shops at brick-and-mortar stores on Black Friday weekend, and all those people need to eat somewhere—preferably on the cheap—while they’re shopping. By sheer volume of locations, McDonald’s is likely to be the most popular choice. It also happens to be the best-performing fast-food stock right now.
MCD is up more than 8% in the last two weeks, jumping from 111 to 120 and clearing both its 50- and 200-day moving averages in the process. Sales have been on a steady decline, but earnings have been resilient, improving more than 7% on a per-share basis in the third quarter. Analysts expect another 7% bump in the current quarter, despite forecasts of a 5% sales decline.
Last year, MCD shares shot up more than 5% in the month following the Black Friday weekend, far outpacing a narrow decline in the S&P 500. In fact, MCD motored all the way to 131 in May before getting knocked backward the second half of the year.
Buoyed by Black Friday, look for a similar end-of-year bounce-back in MCD stock this year—especially now that the stock has plenty of momentum on its side.
Black Friday Stock #3: Macy’s (M)
It helps to have your name on the most-watched holiday parade of the year (22.3 million viewers tuned into last year’s Macy’s Thanksgiving Day Parade). It also helps to have an upward-trending stock.
Shares of this New York-based department-store giant have gone nowhere but up in the last month, kiting from 35 to 43—a 22% jump. Well above its moving averages, M stock is also pretty cheap at just 12 times forward earnings estimates, and analysts expect earnings to grow 7.5% in 2017 after a down 2016.
Make no mistake: Macy’s is an outdated company that has been weighed down by stagnating sales in recent years. In many ways, it’s the kind of retailer that has been hurt most by recent Black Friday sales declines. But the company still gets plenty of good publicity (and even more holiday commercials) this time of year, and the stock has been shooting straight up for a month.
You wouldn’t necessarily want to buy Macy’s stock and hold onto it for the next 10 to 20 years. But the purpose of this story is to identify momentum stocks to buy before Black Friday, implying that they have (at least in some cases) a fairly short shelf life.
And if you want to learn what other momentum stocks we’re recommending as the holidays approach, you can get yourself the gift of a subscription to Cabot Top Ten Trader. For more information, click here.
