In Advance of Black Friday, Two Stock Picks in Retail

The firm’s first stock pick is Costco Wholesale Corp. (NASDAQ: COST). Sterne Agee notes that Costco’s store traffic has remained at a high level in November, up about 4.5% and it is expecting a core same-store sales report showing that November is up 5% year-over-year excluding a 1% drop on fuel sales and a 0.75% drop related to currency exchange effects. Overall, Sterne Agee sees momentum in shares of Costco, up 26.8% so far this year, continuing into the end of the year and reiterates its Buy rating and $144 price target. Costco’s shares are trading up about 0.3% in the noon hour on Wednesday at $125.59 in a 52-week range of $96.51 to $126.12.

The other stock the firm likes is Dollar Tree Inc. (NASDAQ: DLTR). The company’s shares have lost about 4.6% since reporting an earnings per share (EPS) miss for the third quarter and the Sterne Agee analysts see the lower price as a “great entry point” for buying the stock. Dollar Tree raised fiscal year 2013 EPS guidance from a range of $2.66 to $2.77 to a new range of $2.72 to $2.78, effectively raising the mid-point by $0.04. Sterne Agee reiterated its Buy rating on the stock with a price target of $63. Dollar Tree’s shares are trading down nearly 0.4% at $55.99 in a 52-week range of $37.47 to $60.19.

Specialty retailer Five Below Inc. (NASDAQ: FIVE) gets a nod for its holiday ad. Sterne Agee analysts compared a basket of 12 advertised products with prices at Amazon.com Inc. (NASDAQ: AMZN) and with 4 products at Wal-Mart Stores Inc. (NYSE: WMT). Five Below’s price for the 12 items was $60 (exactly $5 apiece), compared with an Amazon price of $143.51. The analysts also compared the Five Below price to the lowest price it could find for each of the items at any retailer selling through Amazon. That basket cost $81.95 through Amazon, more than 36% higher than the Five Below price. For the four items sold at Walmart, Five Below’s prices were about 65% lower. Sterne Agee rates Five Below a Buy with a price target of $56. The stock is trading down about 0.5% at $53.20 in a 52-week range of $27.75 to $55.28.

The analysts also note that the weather for the coming weekend is expected to be dry but one of the coldest on record for most of the U.S. For brick-and-mortar retailers, cold is better than rain or snow.