These 3 Defensive Retail Stocks Are Outpacing the Market

Key Points

• Recent economic data shows investors that a potential rotation out of cyclical names is starting, one that could benefit these defensive stocks.
• Wall Street analysts are already behind this rotation, showing double-digit upside in these three names.
• Institutional capital and other factors also justify investors taking a second look into these companies.

One of the most important things investors need to be aware of in the market is economic data, especially when the S&P 500 trades near or at its all-time highs, such as today. This is because the data will show investors what the charts won’t and that is whether the underlying economy can actually support the current valuations in the broader financial markets.

Today, one of the most important pieces of fat for investors to consider is giving investors something to think about. While consumer discretionary items were the ones that led the way in retail sales data for the past quarter, things are starting to shift now that the holiday season is over. Consumers return to their planned spending budgets, which show a lot more consumer staples spending, which is defensive-focused and not a good sign of confidence.

However, this is where investors can get ahead of the wave of capital that will likely flow into defensive names as well if there’s a broader rotation out of volatility-driven cyclical, then investors will benefit from keeping an eye on names like Walmart Inc. NYSE: WMT, Dollar Tree Inc. NASDAQ: DLTR, and even Dollar General Co. NYSE: DG could be some of the best additions for investors to consider keeping their portfolios safe, while also leaving some of the upside potential intact.

A Rotation Begins With Walmart Stock

Retail sales data will show investors that, over the past quarter, general merchandise store sales growth has been accelerating, while discretionary items like sporting goods and clothing contracted during the month. This shows the true colors of consumer psychology right now.

Knowing that economic, fundamental data is more important near the market's highs, this might explain why up to $15 billion worth of institutional capital decided to call Walmart stock its home over the past quarter, but this rotation is not the only reason that these institutions started buying.

Wall Street analysts now forecast up to $0.75 in earnings per share (EPS) for Walmart over the next 12 months, a boost of just under 30% from today’s $0.58 in earnings. Considering that EPS growth mostly drives stock price action and performance, investors can see how there could be a higher ceiling in Walmart.

This theme would explain why analysts at Citigroup kept a Buy rating on Walmart stock as of February 2025, this time valuing it at up to $120 per share. This valuation not only calls for a new 52-week high but also for a net upside potential of 15% from where the stock trades today, giving investors the confidence they need.

Sellers Give Up on Dollar Tree Stock

Over the past month alone, up to 3.1% of Dollar Tree’s short interest was taken out, a sign of bearish capitulation now that the stock trades at only 47% of its 52-week high, potentially already pricing in the worst that could come for this company. More than that, there are other signs of bullishness brewing up for the name.

Institutional buyers purchased as much as $1.6 billion worth of stock during the past quarter, confirming that the theme on Wall Street also favors defensive names after retail sales data. Leading the pack were those from T. Rowe Price Investment Management, who decided to boost their holdings in Dollar Tree stock by 5.7% as of February 2025.

This new allocation brought the group’s net position to a high of $743.5 million today, or 4.6% ownership in the company. It is another bullish factor that investors can lean on today. What gives these buyers confidence is not only the fantastic risk-to-reward to be had in the stock due to its low price today but also where Wall Street sees it going.

Analysts at Guggenheim think Dollar Tree is a Buy, but they also targeted its fair value at $100 per share, meaning a 40% upside from where the stock trades today. The themes are starting to become clear; these defensive names are the place to be.

Massive EPS Growth Coming to Dollar General

After the company’s management sought to restructure the business model, locations, and other factors during its latest earnings announcement, Wall Street seems to have warmed up to the possibility that this company could be a turnaround in the making.

The current EPS forecast for the third quarter of 2025 is set at $1.74, a near 100% jump from today’s $0.89 in earnings. Again, since EPS drives stock valuations and price action, there’s a clear path for investors to consider much more upside in this name.

These are some of the reasons why analysts at Barclays have kept an Overweight rating on Dollar General stock and are now valuing it at up to $100 per share. This valuation shows investors the potential for as much as 38% upside from today’s low price in the stock, which is set at only 43% of its 52-week high levels.