The Trump administration’s tariff policies have kept the economy on edge. Fears of rising inflation remain highly prevalent and, to some extent, are not unfounded. However, the economy continues to advance at a good pace. The reason? Its K-shaped nature. While the higher-income cohort remains mostly indifferent to the whims of their relatively less well-off brethren, people belonging to the middle class and below are finding it difficult to navigate their daily lives due to rising prices of essential items. This is quite evident in this report from the Federal Reserve Bank of Cleveland.
The study confirmed that low-income households face a consistently higher effective inflation rate because they spend a disproportionate amount of their income on rent and food. These are categories in which prices remained “fixed” and high, while high-income earners benefited most from the reduction in prices of discretionary goods.
But Bernstein, a financial services specialist, believes there may finally be something to cheer up the middle and lower middle class in the form of tax refunds thanks to the One Big Beautiful Bill. In particular, the company expects the rebates to total between “between $1,000 and $2,000 per household.”
Therefore, with an increase in disposable income, what stocks can see a benefit from this expected increase in spending? Bernstein believes these three are the best placed (spoiler: they are all retailers).
Founded in 1983, Costco (COST) operates a membership-only wholesale club model where customers pay an annual fee to buy in bulk at low prices across a wide range of categories, such as groceries, electronics, perishables, etc. In particular, it is a global leader in membership warehouse retailing with hundreds of locations around the world.
Valued with a market capitalization of $436.4 billion, COST stock is up 5% over the past year. Meanwhile, the stock’s current dividend yield is 0.53% and the company has been increasing dividends consecutively for the past 21 years. Plus, with a payout ratio of just under 30%, there’s still room for growth.
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Financially, Costco’s track record has been nothing extraordinary, but it has been stable. Over the past 10 years, Costco’s revenue and profits have grown at compound rates of 9.18% and 13.26%, respectively. Notably, in the most recent quarter the company reported an increase in both revenue and profit.
For the first quarter ending November 23, 2025, Costco’s total revenue was $67.3 billion, up 8.3% year-over-year. Earnings of $4.50 per share rose from $4.04 per share in the year-ago period, also beating expectations for earnings per share (EPS) of $4.27. Notably, this was the third consecutive quarter in which the company’s earnings were surpassed.
Net cash from operating activities also increased to $4.7 billion from $3.3 billion a year earlier, as the company closed the quarter with a cash balance of $16.2 billion with no short-term debt on its balance sheet.
However, the shares are trading at strong valuations. Its Forward P/E, P/S, and P/CF of 48.48, 1.47, and 39.35 are all higher than the industry medians of 16.25, 1.12, and 12.22, respectively.
Taking all this into account, analysts have assigned a “Moderate Buy” consensus rating to COST stock, with an average price target of $1,043.32. This indicates an upside potential of around 6.1% from current levels. Of the 35 analysts covering the stock, 19 have a “Strong Buy” rating, four have a “Moderate Buy” rating, 11 have a “Hold” rating, and one has a “Strong Sell” rating.
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TJX Companies (TJX) has its roots in the discount retail model, with the first TJ Maxx stores opening in 1977. It is the largest discount retailer in the U.S. and a major global player in discount apparel, home fashions and accessories. Its business model focuses on offering a rapidly changing variety of brand-name, quality and fashionable merchandise at prices generally lower than those of full-price retailers.
With a market capitalization of $170.2 billion, TJX stock is up 23% over the past year. Additionally, the stock offers a dividend yield of 1.11%, which is higher than the industry average of 1.013%. The company has been increasing dividends consecutively for almost 30 years, making it a “Dividend Aristocrat.”
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The dividend increases have been accompanied by reasonable CAGRs in revenue and earnings of 6.89% and 8.52%, respectively. Notably, the latest Q3 2025 results were also impressive: both revenue and profit surpassed estimates.
Net sales grew 7% from a year earlier to $15.1 billion, while gross margins improved 100 basis points to 32.6% in the same period. Earnings rose 12.3% year over year (YoY) to $1.28 per share, beating Street estimates of $1.23 per share. Encouragingly, this was the company’s ninth consecutive quarter in which earnings beat.
In terms of cash flows, for the first nine months ended November 1, 2025, TJX reported net cash from operating activities of $3.7 billion, up from $3.4 billion a year earlier. Overall, the company closed the quarter with a cash balance of $4.6 billion. Although this was higher than short-term debt levels of $2.7 billion, the amount of short-term debt increased 68.8% from a year earlier.
The stock’s valuation also remains above the sector medians with a Forward P/E, P/S and P/CF of 32.76, 2.84 and 25.02, all higher than the sector medians of 17.89, 0.98 and 12.19, respectively.
However, the Street has assigned a “Strong Buy” overall consensus rating on the stock with an average price target of $167.26. This denotes an upside potential of around 9% from current levels. Of the 20 analysts covering the stock, 17 have a “Strong Buy” rating, one has a “Moderate Buy” rating, and two have a “Hold” rating.
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We conclude our list with the world’s largest retailer, Walmart (WMT). Founded in 1962, Walmart is a leading multi-channel retailer, serving customers across extensive physical and digital platforms. Walmart’s combination of store presence, membership business (Sam’s Club) and online marketplace creates a uniquely diversified retail ecosystem that integrates digital convenience with brick-and-mortar advantages.
With a mammoth market capitalization of $938.3 billion, WMT stock is up 25% over the past year. In particular, the stock offers a dividend yield of 0.80%. It may seem modest, but Walmart has increased its dividend every year for the past 52 years, making it a member of the coveted “Dividend King” club. And, with a payout ratio of only around 35%, there is still room for further growth.
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Walmart’s revenue and earnings have recorded CAGRs of 3.80% and 4.15%, respectively, over the past 10 years. Additionally, after a rare earnings miss in the previous quarter, Walmart has once again exceeded Street expectations, beating both top and bottom lines.
In the fiscal third quarter of 2026, Walmart’s revenue was $179.5 billion, up 5.8% year over year. Meanwhile, earnings rose 6.9% year-over-year to $0.62 per share, slightly above the consensus estimate of $0.60 per share. Overall, over the last nine quarters, Walmart’s EPS has surpassed expectations eight times.
Net cash from operating activities increased to $27.4 billion for the nine months ended October 31, 2025. This marked a year-over-year increase of 19.8%. Overall, Walmart closed the quarter with a cash balance of $10.6 billion, lower than short-term debt levels of $14.4 billion. While this may seem concerning, Walmart’s steadily growing revenue, even at such scale, and strong cash flows from operations give Walmart a strong position.
However, like its previous peers, Walmart’s valuations remain uncomfortably high. With a Forward P/E, P/S, and P/CF of 44.63, 1.33, and 24.85, all metrics are higher than the industry medians of 6.25, 1.12, and 12.22, respectively.
Taking all this into account, analysts have still assigned a “Strong Buy” consensus rating for WMT shares, with an average price target of $123.73, denoting an upside potential of approximately 5.1% from current levels. Of the 38 analysts covering the stock, 29 have a “Strong Buy” rating, six have a “Moderate Buy” rating, two have a “Hold” rating, and one has a “Strong Sell” rating.
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On the date of publication, Pathikrit Bose had no (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
