By Ian Salisbury

Retail stocks are on sale, offering a potential opportunity for bargain hunters.

For the past year, retail stocks have been decidedly out of fashion. The State Street SPDR S&P Retail ETF has returned a bit more than 13%, compared with more than 17% for the S&P 500. Blame a sluggish job market and worries over President Donald Trump's tariff wars.

Wall Street doesn't have high hopes for the coming earnings season. Analysts forecast fourth-quarter earnings growth of 0.8% for staples stocks and an average profit decline of 1.4% for consumer discretionary stocks, according to FactSet.

Those travails may provide a buying opportunity, given the relatively health economic climate, argued 22V Research President Dennis DeBusschere in a note Tuesday. Recent data from credit-card providers suggest consumer spending is solid, he noted. Weekly unemployment claims are healthy and Fed data suggest consumers aren't falling behind on their loans.

"Retail [is] becoming tactically interesting," he wrote.

To find the most appealing retail stocks, Barron's ran a FactSet screen for inexpensive companies in the sector with solid earnings and dividend prospects. Specifically, we looked for stocks with forward price/earnings ratio below the S&P 500's average of 22, with dividend payout ratios below 90%, and expected 2026 earnings growth of at least 5%.

One name that jumps out is BJ's Wholesale Club. The stock, long viewed as an also-ran behind stars like Costco Wholesale and Walmart, was a Barron's stock pick last month .

BJ's isn't super cheap. It trades at about 20 times forward earnings and doesn't pay a dividend. But analysts expect solid 7% to 8% earnings growth in 2026 and 2027.

The Marlborough-Mass.-based discounter has recently been expanding its 260-store footprint from its stronghold on the East Coast into states such as Texas.

Also on the list are grocers Kroger and Sprouts Farmers Market and the all-around staples purveyor Dollar General. Kroger reported a $1.5 billion operating loss for its November quarter, after closing underperforming e-commerce facilities.

But now the stock, which is essentially flat over the past year, trades at just 12 times forward earnings, while analysts expect 7% profit growth in 2026 and 10% in 2027.

Other retail stocks that look undervalued include three auto-related companies: Lithia Motors, AutoNation, and Valvoline. Urban Outfitters, Sally Beauty Holdings, and Build-A-Bear Workshop also made the list.

Write to Ian Salisbury at ian.salisbury@barrons.com

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February 03, 2026 15:28 ET (20:28 GMT)

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