Retail sales data and corporate earnings have offered investors a mixed picture, but the landscape has some bright spots for investors, according to Cowen. “There are many crosscurrents with the consumer,” Oliver Chen, senior equity research analyst at Cowen covering retail and luxury goods, said on CNBC’s ” Squawk on the Street ” Friday. “Inflation is certainly hurting the middle- to lower-income consumer.,” he added “However, there’s a tight labor market at 3.7% unemployment. There are lots of positives about the consumer, too. The consumer is going out again; inflation is negatively impacting consumer discretionary categories.” Chen named Walmart , Macy’s and Ulta Beauty as some of the firm’s favorite picks for this shopping season. “All three offer very strong value to the consumer,” Chen said. “At Walmart, you have a consumer staples piece, 50% plus grocery. Ulta’s a beauty retailer – all things beauty all in one place, that’s a very good category. And Macy’s has done a very good job across a diverse portfolio. All three are offering great gifting assortments as well, and they have very clean inventories coming into a tough situation.” Chen said his team also likes recommending retail stocks that have inflation resistance, like luxury brands, as well as stocks like Costco, “which offer exceptional value.” Corporate earnings have been mixed. For instance, Target warned of a weak holiday shopping season , while Lowe’s has raised its earnings forecast . On top of earnings, the most recent U.S. retail sales data painted a positive picture, while inflation continues to hang over investors like a dark cloud. Chen said he’s watching retailers’ inventory levels, and that January will be a telling month when stores begin putting out clearance items. “Retailers are really calibrating to be as clean as possible for next year, so we’re optimistic that things can get better,” Chen said. “However, the savings rate is something to watch, also rising credit usage and these are all things we’re thinking about.”
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