Stocks to buy

Retail and consumer stocks have shown little strength lately. A few names have reported strong quarterly results and hit new highs. However, the underperformance of this group has left several undervalued consumer stocks.

For instance, the SPDR S&P Retail ETF (NYSEARCA:XRT) is up just 2.2% so far this year. That lags the 7% and 15% return from the S&P 500 and Nasdaq, respectively.

In fact, before the broad-based market rally that came in the second half of March, this sector looked downright concerning. At one point, it even looked like these stocks were flashing some sort of recessionary warning sign.

With the latest rally, that worry has died down a bit. If it comes to fruition — a recession that is — then most of these stocks will get even cheaper. Let’s look at a few undervalued consumer stocks now.

SBUX Starbucks $104.68
HD Home Depot $288.61
DKS Dick’s Sporting Goods $137.94

 Starbucks (SBUX)

Source: monticello / Shutterstock.com

Starbucks (NASDAQ:SBUX) has been one of my favorite long-term holdings over the last 10-plus years.

It has been (mostly) consistent and continues to generate strong sales and earnings results. It resonates well with young and old customers alike and when you think about the sales it generates in a day, it’s hard to pass on a high-quality consumer company like this.

When the Covid-19 pandemic unfolded, how many Starbucks locations did you see with lines wrapped around it? Enough to make you realize that not even a global pandemic can stop this business.

The problem? Now trading near 29 times earnings, it’s hard to call this stock cheap. I look at it like this, though.

Shares trade at roughly 25 times next year’s earnings estimates. It’s expected that the firm’s revenue will increase by 11.5% this year and the following year, with 15% earnings growth in 2023 and 20% growth in 2024.

China is as Starbucks’ second-largest market. If there’s a steady uptick in this region, then Starbucks stock could exceed all current consensus estimates. Wouldn’t it be great to accumulate some shares around $85?

Home Depot (HD)

Source: Jonathan Weiss / Shutterstock.com

Moving down the valuation ladder, we get Home Depot (NYSE:HD).

However, with the lower valuation comes lower growth rates, as the pause in the housing sector has finally caught up to the home improvement retailers.

That’s as Home Depot is up just 8.5% from its 52-week low. I’m not sure why there’s a lack of love for this name, but that’s the case right now. It may be due to forecasts calling for flat revenue growth this year and a 5% earnings dip.

It leaves shares trading at roughly 18 times this year’s earnings expectations, which is not all that bad. Particularly when the stock pays out a 2.9% dividend yield.

The dividend has been a proper focus over the years, with management raising the annual payout for 13 straight years. The five-year growth rate is at an impressive 16% to boot.

Finally, even if we see a housing slowdown over the next year or two, what do you think all of the people who locked in 30-year mortgages with sub-4% rates are going to do? They’re going to stay put and fix up their houses.

Dick’s Sporting Goods (DKS)

Source: George Sheldon via Shutterstock

Even though Dick’s Sporting Goods (NYSE:DKS) recently hit an all-time high, it’s one that investors may still consider as undervalued.

When the company reported earnings on March 7th, the retailer delivered a top- and bottom-line beat, growing revenue about 7.4% year over year.

Even better, it provided strong full-year earnings guidance that topped analysts’ expectations and more than doubled its dividend payout. Shares now yield close to 3%.

Perhaps the best part about all of this?

Dick’s Sporting Goods stock trades at just over 10 times this year’s earnings estimates! While consensus expectations only call for mild single-digit revenue growth this year and next year, estimates call for almost 12% earnings growth.

While that’s not quite the pace Starbucks is running at, Dick’s comes at a much lower price.

On the date of publication, Bret Kenwell did not have (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.

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