Hot Picks: Retail stocks could rebound as valuations improve

Consumer spending has remained more resilient than many expected despite concerns over higher costs and economic uncertainty. While some retail categories continue to face headwinds, selective opportunities are emerging among companies trading well below their historical valuations.

BNN Bloomberg spoke with David Swartz, senior equity analyst at Morningstar, about his preferred retail stocks and why he believes recent share price weakness has created attractive long-term opportunities. He discussed valuation, balance sheet strength and the factors that could support future earnings growth.

Key Takeaways

• Consumer spending has remained more resilient than expected, supporting many apparel and consumer brands despite economic concerns.
• Beauty products continue to outperform, while home goods remain under pressure because of weak household formation.
• Retail companies with strong balance sheets and improving operations may offer compelling long-term value after significant share price declines.
• Leadership changes, acquisitions and restructuring efforts can help position retailers for future earnings growth.
• Investors should focus on valuation and long-term fundamentals rather than short-term market sentiment.

Read the full transcript below:

LINDSAY: It’s time now for Hot Picks, and today we are zeroing in on three picks in the retail sector. So, for more, let’s bring in David Swartz, senior equity analyst at Morningstar. It’s great to have you join us.

DAVID: Good morning.

LINDSAY: So, let’s talk about the sector as a whole first before we get into your three picks. What are you seeing when it comes to consumer spending right now and how that’s really impacting the retail sector?

DAVID: Generally, I think consumer spending has been better than expected. If you go back to the holiday season in 2025, expectations were relatively low, but the holiday period last year came in better than expected. The early part of 2026 has also been pretty favourable for most of the companies that I cover. I primarily cover companies in the apparel retail and apparel manufacturing space, and there has been a lot of concern that higher oil prices and other higher costs would crowd out spending on clothing and footwear. But so far, we haven’t really seen that very much.

LINDSAY: Okay, I was going to ask if there are certain retail categories that are performing better right now, like groceries or apparel, but it sounds like you’re mainly focused on apparel. Is that right?

DAVID: Yeah, I also cover home goods and beauty. I cover Ulta Beauty, for example, and beauty products have really been selling well. Home goods have been weaker. Furniture, for example, has been weaker. Household formation in the United States and other places has been really kind of weak for quite some time, and that has affected spending on furniture and home goods and other types of products that are related to household formation.

LINDSAY: Okay, so let’s get to your picks, then. Gildan is the first one, Gildan Activewear. This stock came under pressure a couple of weeks ago with an apparent investigation on the way, but what is it that you like about this company right now?

DAVID: Yeah, so a couple of weeks ago, a short seller did come out with a long report alleging, essentially, that Gildan has been stuffing the channel by shipping too much product to one of its major distributors, a company called SNS. The company put out a brief statement afterwards reiterating its guidance for the year. I do think that Gildan may have oversupplied some of its distributors, but I really don’t think it’s a major problem. I think it’s fairly common in this industry, and it’s something that, in the long term, probably won’t matter. The really important thing right now for Gildan is its integration of Hanesbrands, which it bought in late 2025, which essentially doubled the size of the company. Hanesbrands, which I also used to cover when it was independent, has been a troubled company over the years, but it still has very high market share in some key categories, like men’s underwear in North America, and so it really enhances Gildan’s consumer business. Gildan is very strong in the printwear business and in blank shirts but is not so strong in consumer, and so buying Hanesbrands really does make it a strong competitor in that space as well, and in stores like Walmart and Target. And, you know, so my fair value estimates on Gildan are quite a bit higher right now than where the stock is on the Toronto-listed shares. My fair value estimate is C$130, so I think there’s a lot of upside in the stock, and that will be more apparent as the Hanesbrands integration moves along.

LINDSAY: I’m surprised that you are willing to look into a company right now. It’s like, as you say, it’s currently being investigated by multiple national securities law firms, but obviously you don’t think that this is going to turn into anything too big for the company.

DAVID: No, I don’t think so. I mean, the investigations that you reference are really more about the stock price, which had dropped considerably on that report, but there isn’t any sort of legal issue at the moment that I’m aware of. We haven’t heard much from the company, it’s true, but I think we’ll hear more when it does report its quarter, which will be in a few weeks. So it won’t be very long before I think we get some clarity on the situation right now with its inventory.

LINDSAY: For sure. Okay, so let’s move on, then. Lululemon, the stock is down more than 40 per cent year to date, but tell us why you like it.

DAVID: Yeah, so Lululemon has really been out of favour. It’s a complete reversal from history because Lululemon, historically, has always been a very widely held and very momentum-driven stock, but in recent quarters it’s really gone the other direction. Right now, Lululemon is actually quite cheap. It’s trading at only 10 times earnings. The company is going to earn about $11 per share this year, and right now it’s trading at a big discount to my fair value estimate, which is about $280. And, you know, so Lululemon does face a lot of competition, and that’s been the big concern. Its sales growth has slowed down in North America considerably, it’s true, but Lululemon is still a leader in the athleisure space. It is a company that has $11 billion in annual sales, and everybody started acting like it’s in terminal decline, but it really isn’t. The company has no debt at all, generates huge cash flow, has plenty of cash on its balance sheet and is a very profitable company with growth prospects in China and other parts of the world. So it does need to get its growth going again in North America. It does, and there is a new CEO coming in in September. Her name is Heidi O’Neill. She used to be an executive at Nike, and, in fact, she was once considered to be a candidate for Nike’s CEO position. So she’s very experienced in this industry.

LINDSAY: Well, to be quick with this last one, I apologize, but VF Corp., just tell us quickly why you like it.

DAVID: Yeah, VF has really fallen on hard times because Vans has slowed down, but I think the company’s done a great job of reducing its debt by $3 billion over the last few years, and I think it’s quite cheap right now.

LINDSAY: Okay, David Swartz, senior equity analyst at Morningstar, really appreciate you squeezing that one in. Thanks for joining us.

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This BNN Bloomberg summary and transcript of the July 8, 2026 interview with David Swartz are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.