ETFOptimize | High-performance ETF-based Investment Strategies

Quantitative strategies, Wall Street-caliber research, and insightful market analysis since 1998.


ETFOptimize | HOME
Close Window

Costco, Dollar General, Target Up As Market Turns Defensive

Consumer staples stocks

Investors are back to playing defense.

Consumer staples stocks were trading higher on October 13 as markets widely anticipated higher interest rates and weakening economic conditions that could boost shares of companies selling essential products like food and toothpaste. 

Retailers Costco Wholesale Corp. (NASDAQ: COST), Dollar General Corp. (NYSE: DG) and Target Corp. (NYSE: TGT) were among the sector gainers, with Dollar General being the biggest. 

The Consumer Staples Select Sector SPDR Fund (NYSEARCA: XLP) was up 0.66%.

Preliminary October data from the University of Michigan's consumer sentiment report came in at 63.0, lower than estimates of 67.5. That number trailed last month’s reading of 68.1 and was the lowest reading since May.

Cosco Well Positioned for Economic Slowdown

Costco advanced 0.33%. There was no particular company news, although you could make an argument that Costco is a compelling stock during an economic downturn. 

The company's members-only model encourages customer loyalty and stable sales, as consumers seek value after shelling out some bucks to join the club. The company’s bulk purchasing power allows it to offer competitive prices, making it attractive during times of frugality, especially if you need a 24-pack of refried beans or two extra-large bottles of Hidden Valley ranch dressing. 

In addition, Costco's focus on essentials like groceries and household items, which consumers continue to buy regardless of economic conditions, ensures stable demand. 

MarketBeat’s Costco analyst ratings show a consensus view of “moderate buy” with a price target of $586.25, an upside of 3.60%.

Target To Hit the Bullseye Again?

Target, meanwhile, advanced 1.66%, tacking on gains to a 3.66% gap higher on October 10. At some point, it was all but inevitable that investors would jump in to nab Target shares at a low valuation, relative to the company’s earnings potential, which is quite strong.

While some attribute Target’s problems to negative coverage in some media outlets over the summer, many analysts believe Target’s merchandise mix and higher prices, relative to other discounters, sent shares lower. The company has also cited organized retail theft as a culprit.

MarketBeat’s Target analyst ratings show a Bank of America upgrade on October 12, which included a significant price target increase to $135 from $120. That’s an upside of 23.84%. 

More Dollars Going Into Dollar General

Beleaguered Dollar General gapped up 8.78%, making it not only the best performer in its sector but in the entire S&P 500. The catalyst was news that former CEO Todd Vasas would return to take the helm after the stock skidded 55% year-to-date. It’s its worst-ever yearly decline. 

In a statement announcing the appointment, Dollar General board chair Michael Calbert said, “At this time the Board has determined that a change in leadership is necessary to restore stability and confidence in the Company moving forward.”

Vasos was CEO between June 2015 and November 2022, during which time Dollar General stock advanced more than 220%. 

Investors Turn to Defensive Sectors

Overall, markets had a “back to basics” tone as utilities, healthcare stocks and energy were the only other sectors posting gains. 

The Utilities Select Sector SPDR Fund (NYSEARCA: XLU) was up 0.73% late in the session, while the Health Care Select Sector SPDR Fund (NYSEARCA: XLV) advanced 0.49%.

When consumers grow more pessimistic about the economy and their financial well-being, they tend to cut back on non-essential spending, like dining out, vacations, and luxury items. This benefits the consumer discretionary sector. 

Additionally, healthcare and utilities are considered defensive sectors. In times of economic uncertainty, investors often turn to those industries as safe havens, as they provide essential services that are less sensitive to economic downturns. 

Energy Returns With A Vengeance

Energy, meanwhile, has returned as a force to reckon with. The Energy Select Sector SPDR Fund (NYSEARCA: XLE) returned 2.35%, gapping higher on a combination of geopolitical concerns and previously announced production cuts. 

After taking a breather in the early months of 2023, energy has been back in rally mode since June, advancing 5.15% in the past three months. 

Data & News supplied by www.cloudquote.io
Stock quotes supplied by Barchart
Quotes delayed at least 20 minutes.
By accessing this page, you agree to the following
Privacy Policy and Terms and Conditions.


 

IntelligentValue Home
Close Window

DISCLAIMER

All content herein is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor should it be interpreted as a recommendation to buy, hold or sell (short or otherwise) any security.  All opinions, analyses, and information included herein are based on sources believed to be reliable, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. We undertake no obligation to update such opinions, analysis or information. You should independently verify all information contained on this website. Some information is based on analysis of past performance or hypothetical performance results, which have inherent limitations. We make no representation that any particular equity or strategy will or is likely to achieve profits or losses similar to those shown. Shareholders, employees, writers, contractors, and affiliates associated with ETFOptimize.com may have ownership positions in the securities that are mentioned. If you are not sure if ETFs, algorithmic investing, or a particular investment is right for you, you are urged to consult with a Registered Investment Advisor (RIA). Neither this website nor anyone associated with producing its content are Registered Investment Advisors, and no attempt is made herein to substitute for personalized, professional investment advice. Neither ETFOptimize.com, Global Alpha Investments, Inc., nor its employees, service providers, associates, or affiliates are responsible for any investment losses you may incur as a result of using the information provided herein. Remember that past investment returns may not be indicative of future returns.

Copyright © 1998-2017 ETFOptimize.com, a publication of Optimized Investments, Inc. All rights reserved.