By Teresa Rivas

It seems like there's always a trendy grouping of highflying tech stocks: Before the Magnificent Seven, there was FAANG. But one analyst says the retail COWs might provide investors with more bite.

For all their star power, the M7 megacap tech stocks -- Google parent Alphabet, Amazon.com, Apple, Facebook parent Meta Platforms, Microsoft, Nvidia, and Tesla -- are collectively in the red for 2025, as measured by the Roundhill Magnificent Seven exchange-traded fund. Still, investors have more than doubled their money since the second quarter of 2023. The FAANG trade--Facebook, Amazon, Apple, Netflix and Google--has delivered more than 27% annualized returns in the past decade.

Bricks-and-mortar retailers don't often enjoy the same cachet with investors, and the SPDR S&P Retail ETF is hovering just below the breakeven line for 2025. However, UBS analyst Michael Lasser argues there's a trio of powerful brands that can deliver long-term outperformance and are worth owning.

"[I]t's appropriate to coin a new acronym for this part of the retail sector: COW," which stands for Costco Wholesale, O'Reilly Automotive, and Walmart, he writes in a note Tuesday. "During times of uncertainty, we think owning the stocks of best-in-class retailers could provide a measure of safety. We believe these are among a few retailers well-positioned with a clear path to upward earnings estimate revisions in this environment."

Lasser says there are a number of reasons to believe COW can keep "moooving" higher (sorry, we had to.) Periods of disruption -- like the current environment's roller-coaster tariff policy and uncertain economic outlook -- allow these retailers to emerge stronger than peers, and each has its own specific competitive advantages.

Likewise, each is a standout in its part of the industry. Walmart is a behemoth, with a commanding grocery business, growing online presence, and a reputation for low prices. Costco is also a value winner that enjoys tremendous customer loyalty. O'Reilly's supply chain network is unrivaled, to the point that commercial mechanics can get parts in as little as 20 minutes.

Of course, much like the tech sector, these stocks don't come cheap. Still, Lasser believes that the COW hasn't left the barn.

"We believe that predictability and visibility into earnings growth is what in part distinguish winners from the rest," he writes. "Consistent and sustainable growth of same-store sales and earnings per share has transformed these retailers into industry leaders that are able to outperform in most volatile and unpredictable backdrops. Plus, clear and open communication from the management helps digest some of the nuances that can happen occasionally. This builds trust. Ultimately, an earnings multiple is a reflection of trust."

Investors don't have to take his word for it--while past performance doesn't ensure future success, the COWs' track record does speak for itself. In the past five years, Walmart shares have surged nearly 150%, while both O'Reilly and Costco are up roughly 235% -- all crushing the S&P 500's gains of around 98% over the same span. All three are also easily outperforming the broader market so far this year.

It seems like the COWs can create their own bull market.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 10, 2025 15:52 ET (19:52 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.