3 Top Stocks to Buy This Holiday Season

While much of the home furnishings and housing industry has struggled due to the slump in the housing market, Williams-Sonoma is still thriving in this difficult environment. The stock is up 87% year to date, driven by strong margin improvement, operational execution, and market share gains.

In its third-quarter earnings report, comparable brand revenue fell 2.9%, a reflection of broader industry headwinds, but its profiitability jumped in the quarter as gross margin rose 230 basis points to 46.7%, driven by higher merchandise margins and supply chain efficiencies. That lifted operating margin by 80 basis points to 17.8%, which led to adjusted earnings per share rising from $1.83 to $1.96.

That’s impressive in the current market environment, and it’s not an accident. The company has focused on controlling inventory and exciting customers with fresh offerings in its product line, which has helped it avoid markdowns. Management argued its full-price strategy helps build trust with customers as they don’t need to feel like they should wait for a sale. It’s also found growth in its B2B and trade business serving design professionals, giving it another growth opportunity.

Last month, management announced a $1 billion addition to its share buyback program, and it has steadily returned capital to shareholders through repurchases. Looking ahead, management sees more room to expand its operating margin, and sales should rebound once the housing market turns. That’s a great reason to expect the stock to continue to move higher and to buy it now.

Jennifer Saibil (Ulta): Ulta shareholders were likely disappointed when they learned that Warren Buffett and Berkshire Hathaway had sold the bulk of their holdings of the retailer in the third quarter, just months after establishing the position. But investors should keep in mind that billionaire money managers have different goals and priorities than individual investors.

Ulta is still a well-established leader in cosmetics and skincare retail with more than 1,400 stores, as well as a store-within-store presence at 500 Target locations. It’s still opening new stores at a steady pace, and its differentiated model offers 600 brands that run from cheap, mass-market names to luxury labels.

Ulta targets the beauty enthusiast, who likes to choose from all kinds of brands, and it’s the originator and premier company with this setup. It also offers services to give customers a one-stop-shop experience, which invites them to spend more with the company.

The beauty industry is expected to expand at a compound annual growth rate in the low-to-mid single digits over the next few years. However, there are some higher-growth categories where Ulta shines. The wellness category is increasing faster than cosmetics, for example, and management believes they combine to create a $400 billion market. As consumers pivot away from the traditional pharmacy makeup channels and department stores to purchase through specialty shops and e-commerce — that’s an opportunity for Ulta.

The company has developed a top loyalty program too, with 44 million members and growing, and members account for 95% of sales. The company estimates there are 140 million beauty enthusiasts, and that number has doubled over the past three years.

Although it’s facing headwinds right now as shoppers scale back on discretionary purchases, it’s well positioned to benefit from organic growth and to capture market share when industry conditions improves.

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On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $369,349!*

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• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $504,097!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of December 9, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Amazon and Target. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Target, Ulta Beauty, and Williams-Sonoma. The Motley Fool has a disclosure policy.

3 Top Stocks to Buy This Holiday Season was originally published by The Motley Fool