Investor Behind Top Tech Fund Warns Mega-Cap Rally Is Running Out Of Steam

The past week was significant for investors in the retail sector, as several prominent companies reported their earnings. However, investors are now grappling with various factors that may impact the sector's performance. Walmart, for instance, delivered better-than-expected earnings and provided strong guidance, while Foot Locker fell short of Wall Street's expectations and offered lackluster guidance for future performance.

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These reports emerge amidst broader concerns surrounding the retail sector, including the sustainability of consumer spending in the face of rising interest rates and fears of an impending recession.

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Considering this backdrop, CNBC Pro conducted a screening process to identify the most favored retail stocks on Wall Street. The analysis encompassed all stocks with market capitalizations of at least $1 billion in the SPDR S&P Retail ETF (XRT), excluding car and auto dealership companies. The following 12 stocks were selected based on having at least 55% of analysts rating them as a buy and an average upside potential of over 10%.

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Walmart, a retail behemoth, made the list with over 60% of analysts rating the stock as a buy and an average upside suggesting a potential 10.8% rally over the next year. The company surpassed expectations in its fiscal first quarter, reporting strong performance in grocery and online sales, which helped offset weaknesses in clothing and electronics. Walmart also raised its full-year earnings guidance following the robust quarterly report. Since the beginning of 2023, Walmart's shares have increased by 5.7%.

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Another company on the list is TJX, the parent company of T.J. Maxx, Marshalls, and HomeGoods. While TJX reported a revenue miss and provided weak future guidance, its earnings per share for the quarter exceeded expectations, according to FactSet. Although the stock has experienced a slight decline of approximately 0.3% this year, more than 56% of analysts rate it as a buy, with an average price target indicating a potential 11.3% rally.

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E-commerce giant Amazon also passed the screening process, receiving buy ratings from around 75% of analysts and an average upside potential of 12.8%. Amazon's stock has surged by 38% this year, rebounding alongside other prominent technology companies. In its first-quarter report, Amazon surpassed analysts' revenue expectations.

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However, investors have expressed concerns regarding the future performance of Amazon's cloud business.

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Discount retailer Dollar General also garnered a buy rating from nearly 60% of analysts, with an average upside potential indicating a possible 10.7% increase in the next year. This would mark a reversal for the stock, which has declined by over 12% year-to-date. The company is scheduled to report its first fiscal quarter earnings on June 1.

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