Retailers are overhauling their operations as technology redefines the shopping experience. Still, secular trends are working against their favor as e-commerce continues to take share from brick and mortars. This puts retail stocks in a tough spot, and over the past six months, the industry’s returns were flat while the S&P 500 gained 9%.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here is one resilient consumer stock at the top of our shopping list and two we’re steering clear of.

Two Consumer Retail Stocks to Sell:

Nordstrom (JWN)

Market Cap: $4.02 billion

Known for its exceptional customer service that features a ‘no questions asked’ return policy, Nordstrom (NYSE:JWN) is a high-end department store chain.

Why Do We Pass on JWN?

1. Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
2. Operating margin of 2.3% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
3. Low returns on capital reflect management’s struggle to allocate funds effectively

Nordstrom is trading at $24.50 per share, or 12.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why JWN doesn’t pass our bar.

Petco (WOOF)

Market Cap: $824.2 million

Historically known for its window displays of pets for sale or adoption, Petco (NASDAQ:WOOF) is a specialty retailer of pet food and supplies as well as a provider of services such as wellness checks and grooming.

Why Does WOOF Worry Us?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Historical operating losses point to an inefficient cost structure
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Petco’s stock price of $2.99 implies a valuation ratio of 65.7x forward price-to-earnings. If you’re considering WOOF for your portfolio, see our FREE research report to learn more.

One Consumer Retail Stock to Buy:

O'Reilly (ORLY)

Market Cap: $75.44 billion

Serving both the DIY customer and professional mechanic, O’Reilly Automotive (NASDAQ:ORLY) is an auto parts and accessories retailer that sells everything from fuel pumps to car air fresheners to mufflers.

Why Will ORLY Outperform?

1. Same-store sales growth averaged 5.4% over the past two years, showing it’s bringing new and repeat shoppers into its stores
2. Differentiated product assortment is reflected in its best-in-class gross margin of 51.2%
3. ORLY is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders

At $1,312 per share, O'Reilly trades at 29x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.