No one likes to see the stock market decline. But when it happens, there are two silver linings in the dark cloud. One is the fact that we can pick up some great stocks for bargain prices. And the second is market downturns don't last forever. So, we can expect many of the fallen stars to shine again once the general market situation improves.
Concerns about high inflation and rising interest rates have hit retail stocks particularly hard in recent weeks. Higher prices eat into retailers' margins. And a higher-interest rate environment may leave consumers with less money to spend.
This economic situation could last for a while -- but it still is temporary. And the following three companies have what it takes to weather the storm. So if you've got $1,000 to invest, consider these players.
Image source: Getty Images.
1. Target
Target (TGT 1.03%) disappointed investors when higher-than-expected costs hurt profitability in the first quarter. But it's important to look at the retailer's overall picture. Target reported its 20th straight quarter of sales growth. And the company's annual profit and sales have been on the rise since 2017.
TGT Net Income (Annual) data by YCharts
That happened as the company invested in several key areas: same-day pickup and delivery services, store revamps, and order fulfillment, to name a few. And Target continues to invest in these areas. For example, Target aims to open 20 new supply chain facilities over the coming three years. The company has also said it will invest as much as $5 billion this year to drive future growth. These efforts should ensure Target's strength over the long term -- even if the company faces lower margins in the near term due to inflation and interest rate challenges.
Target shares are trading for about 11.29 times trailing 12-month earnings. It's their lowest by that measure since 2019. This represents a good entry point to an inexpensive stock that could deliver big returns over time.
2. Etsy
Etsy (ETSY -0.86%) is the online place to go for handmade goods. Shoppers for and sellers of these items know it. That's why both of these populations continue to grow. And that's one big reason to like Etsy. In the first quarter, the company's number of active sellers of goods jumped more than 62% year over year. Active buyers climbed almost 5% to more than 95 million individuals.
Gross merchandise sales (GMS) also continue to rise. It increased 3.5% to $3.3 billion in the quarter. Investors may be disappointed GMS isn't climbing as steeply as it did during the earlier stages of the pandemic. But that was an exceptional period for many online retailers as consumers opted for online shopping and certain sorts of purchases -- for example, handmade face masks on Etsy.
What is important is Etsy continues to grow and is investing in its platform -- that will boost future growth. In recent months, Etsy improved its search tools for buyers and added new feature to its app for sellers.
At about 23 times trailing 12-month earnings, Etsy is trading around its cheapest ever.
ETSY PE Ratio data by YCharts
It may not surge back to its highest valuation, but considering Etsy's growth potential, today's price looks like a deal for long-term investors.
3. Home Depot
Home Depot (HD 0.74%) is the world's biggest home improvement retailer. And it's showing that, in spite of economic worries, consumers still are spending on projects in their homes.
In the first-quarter earnings report, Home Depot reported a 3.8% increase in sales to $38.9 billion, and diluted earnings per share advanced 6% to $4.09. The company even raised its guidance for the year. It now expects total sales growth and same-store sales growth of about 3%. It originally predicted growth would be "slightly positive."
Of course, it's possible higher inflation or rising interest rates may eventually weigh on Home Depot. But I wouldn't be overly worried about a lasting impact. Home Depot offered a few clues in its report that support the idea of long-term growth. For instance, more expensive transactions -- those totaling $1,000 or more -- increased 12.4% year over year. The company also noted significant gains in its sales to professionals -- that indicates pros' backlogs of projects are strong.
"We believe that the medium- to longer-term underpinnings of demand for home improvement have never been stronger," chief operating officer Ted Decker said during the earnings call.
Home Depot shares have dropped 27% this year. Right now, the stock is trading at about 19 times forward earnings. It's only been considerably lower once over the past decade -- during the coronavirus market crash.
HD PE Ratio data by YCharts
How to invest $1,000?
You may want to invest a portion of your $1,000 in each of these stocks. Or you may prefer to put the entire sum into just one. This decision will depend on what your portfolio looks like today and how you want it to look tomorrow. It's important to balance your portfolio -- investing across industries and asset types often minimizes risk.
And, ideally, you'll hold onto your selection or selections for at least five years. This gives them time to grow revenue and profit -- and you time to benefit from stock performance.
