7 Best Retail Stocks to Buy for 2022

·5 min read

Put these retail stocks on your 2022 shopping list.

The retail sector faced unprecedented challenges in recent years. However, analysts and investors are hoping the retail industry can finally normalize in 2022 after a string of disturbances, including lockdowns, inflation, supply chain disruptions and a tight labor market. Since the outbreak of the omicron variant of COVID-19 began in late November, the SPDR S&P Retail ETF (ticker: XRT), an exchange-traded fund that tracks the sector, is down about 20%. Fortunately, the Morningstar analyst team says there are plenty of opportunities for selective investors to buy high-quality retail stocks in anticipation of a return to normalcy. Here are seven of Morningstar's top retail stocks to buy in 2022.

Amazon.com Inc. (AMZN)

Shares of online retail giant and cloud services leader Amazon haven't delivered the type of gains long-term investors are used to as of late. In fact, Amazon shares are down about 12% in the past year. Analyst Dan Romanoff says long-term investors shouldn't worry about Amazon's recent underperformance. He says the company's AWS cloud business and its nascent advertising business will provide fuel for future growth, while Amazon Prime membership is its "secret sauce" that ties its ecosystem together and provides high-margin recurring revenue. Morningstar has a "buy" rating and $4,100 fair value estimate for AMZN stock, which closed at $2,777.45 on Jan. 26.

Alibaba Group Holding Ltd. (BABA)

Alibaba is a Chinese market leader in e-commerce and cloud services. In the third quarter, it reported 28% revenue growth and 31% core commerce revenue growth. Despite its impressive growth numbers, Alibaba shares are down more than 52% in the past year on concerns about Big Tech antitrust crackdowns in China and increased regulatory scrutiny of public Chinese companies in the U.S. Analyst Chelsey Tam says Alibaba's big-data-centric businesses create an unparalleled network effect that will allow it to expand into additional markets and growth sources. Morningstar has a "buy" rating and $188 fair value estimate for BABA stock, which closed at $113.37 on Jan. 26.

JD.com Inc. (JD)

JD.com is also a major e-commerce platform in China that has been weighed down by regulatory uncertainty in both China and the U.S. However, Tam says the stock is trading at an attractive valuation. She estimates that JD expanded its mobile shopping market share in China from 21% in 2016 to 27% in 2020. Tam says JD should continue to grow margins as it increases its scale over the long term. In the near term, Tam is projecting 24% revenue growth from JD in the fourth quarter. Morningstar has a "buy" rating and $105 price target for JD stock, which closed at $71.11 on Jan. 26.

MercadoLibre Inc. (MELI)

MercadoLibre is Latin America's largest online marketplace operator and is an e-commerce leader in markets such as Brazil, Argentina and Mexico. MercadoLibre shares are down more than 33% since the company announced a 1 million-share equity offering in November, but analyst Sean Dunlop says the equity offering is not necessarily an indication that management saw the stock as overvalued. Instead, Dunlop says, the company was likely shoring up its balance sheet amid an uncertain macroeconomic backdrop in the near term, which includes upcoming elections and constitutional referendums. Morningstar has a "buy" rating and $1,760 fair value estimate for MELI stock, which closed at $975.64 on Jan. 26.

eBay Inc. (EBAY)

EBay operates the world's leading internet auction platform. After divesting Stubhub, eBay Classified and Gmart, Dunlop says, eBay has become a focused customer-to-customer e-commerce platform with an emphasis on used goods. In addition, eBay has improved its platform, adding managed payments, promoted listings and inventory management services. Dunlop says eBay's core Marketplace business still has long-term growth opportunities, including a $500 billion total addressable market in non-new, seasoned goods. Dunlop says eBay's focus on collectibles, liquidation inventory, luxury jewelry and premium shoes is also a savvy decision. Morningstar has a "buy" rating and $72 fair value estimate for EBAY stock, which closed at $57.71 on Jan. 26.

Best Buy Co. Inc. (BBY)

Best Buy is a leading North American consumer electronics retailer. Dunlop says the consumer electronics space is intensely competitive, but Best Buy's services and omnichannel capabilities have helped the company carve out a competitive moat. After investing $2.5 billion in its supply chain and e-commerce offerings, Dunlop estimates, roughly 35% of the company's future sales will come through digital channels. Best Buy's "buy online, pick up in store," or BOPIS, sales account for about 40% of e-commerce volumes and are difficult for online-first competitors like Amazon to replicate. Morningstar has a "buy" rating and $116 fair value estimate for BBY stock, which closed at $96.92 on Jan. 26.

CarMax Inc. (KMX)

CarMax is the largest U.S. used-vehicle retailer and operates more than 200 stores in 41 states. Analyst David Whiston says the ongoing global semiconductor shortage has led to thin vehicle inventories and higher procurement costs for used-car retailers like CarMax. However, Whiston says investors shouldn't be too concerned with temporary gross margin pressures, given that CarMax's same-store sales were up 15.8% in the third quarter. Finally, management has done a good job generating steady gross profit per unit even as margins have compressed. Morningstar has a "buy" rating and $138 fair value estimate for KMX stock, which closed at $107.75 on Jan. 26.

7 best retail stocks to buy for 2022:

-- Amazon.com Inc. (AMZN)

-- Alibaba Group Holding Ltd. (BABA)

-- JD.com Inc. (JD)

-- MercadoLibre Inc. (MELI)

-- eBay Inc. (EBAY)

-- Best Buy Co. Inc. (BBY)

-- Carmax Inc. (KMX)