Top Retail Stocks for 2022 Range From LVMH to Costco, According to Cowen Analysts

The top retail stocks for 2022 are companies that specialize in luxury goods, and those that are resilient against inflation, according to Cowen analysts.

Investors should look for defensive stocks that perform better during broad market recessions and offer solid returns amid inflation, which will be “significant and semi-permanent,” heading into next year, Cowen analysts wrote in a report published Tuesday.

“Cowen prefers to own stocks tailored toward the high end consumers, and stocks that provide deep value to the lower-end consumers,” wrote lead analyst Oliver Chen. Those include LVMH Moet Hennessy Louis Vuitton(ticker: MC:France),RH,(RH), the retailer formerly known as Restoration Hardware,Brilliant Earth Group(BRLT),Costco Wholesale(COST), and Walmart(WMT).

Costco,Brilliant Earth,RH, and LVMH can hold steady against inflation thanks to their pricing power and market share, Chen wrote. RH, for example, has about a 4.5% market share of the furniture industry, and Brilliant Earth has about $61 billion of the $300 billion global fine jewelry market, the analysts say.

The firm’s top retail pick for 2022 is department store Macy’s(M), which is up about 134% this year. The company has faced pressure to separate its digital operation from its bricks and mortar business, but Cowen says Macy’s is accelerating its digital business, which could reach $10 billion in sales by fiscal year 2023. That would account for about 40% of overall revenue, according to Cowen estimates.

Other retail-giant picks include Target(TGT) and Walmart,which have successfully merged their physical store operations with digital strategies, Chen wrote. Target, Walmart and Costco are also multicategory stock picks that offer services that include next-day and two-day delivery, curbside pickup, and partnerships with Instacart.

Investors shouldn’t overlook the beauty industry as “consumers’ awareness and preference for health and wellness remain elevated,” the analysts wrote.E.l.f. Beauty(ELF),Olaplex Holdings(OLPX),Sally Beauty Holdings(SBH),Beauty Health(SKIN), the parent of Hydrafacial, andUlta Beauty(ULTA), each offer “innovation, pricing and generation Z,” factors. Of the picks, Olaplex is projected to see the most sales growth— 26.6%—in a global cosmetics industryset to hit $415.29 billion from 2021 to 2028.