AutoZone, Home Depot, Tractor Supply among top retail picks at Wells Fargo
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As recession risks rise, investors should begin positioning themselves more defensively in hardline retail stocks, according to Wells Fargo analyst Zachary Fadem.
He explained in a note on Wednesday that while discretionary categories have the most upside, investors need to guard against risks before chasing higher growth names.
âTaking a step back, the consumer remains resilient, yet with mounting inflation, rising rates and inevitable Hardlines normalization back to Experiences & Travel, positive catalysts for broader retail appear limited as we stand today,â Fadem wrote. âThus, we believe defensive positioning remains warranted, preferring [AutoZone] (NYSE:AZO), [Home Depot] (NYSE:HD), and [Tractor Supply Co.] (NASDAQ:TSCO), followed by [OâReilly Automotive] (NASDAQ:ORLY) and [Loweâs] (LOW).â 
O'Reilly was cited in the research as the "most interesting" among non-discretionary names. Advance Auto Parts (AAP
-0.5%), by contrast, was not recommended as slower topline growth and margin improvement as compared to peers tempers the risk reward proposition to the downside.
Fadem added that while more discretionary names are not recommended, his teamâs analysis nonetheless reflected favorably upon Floor & Decor Holdings (FND
-1.7%), Petco Health & Wellness (WOOF
-1.3%), National Vision Holdings (EYE
-2.8%) and RH (RH
-1.8%). Williams Sonoma (WSM
+0.8%) was also cited as a stock with significant upside, âa potentially fading demand backdrop and elevated margin levels vs. pre-pandemicâ prevented Fadem from assigning more than a Neutral rating to shares.
By contrast, Fademâs team assessed appetite for eCommerce growth stocks like Wayfair (W
+3.3%), Vroom (VRM
-1.9%), Shift Technologies (SFT
-1.1%), and Carvana (CVNA
+1.3%) as remaining âvery lowâ with short interest also remaining high on some of the names. Fadem indicated he sees the largest potential downside for Wayfair in a recessionary scenario with Carvana also likely coming under added pressure.
Given the broad industry review, Fademâs team reassessed price targets across the space in light of a defensive preference. Indeed, despite the preference for stocks like OâReilly (ORLY) and Loweâs (LOW) as resilient stocks in a recession, the team reined in upside estimates for even those names. A rundown of price target changes and share ratings are summarized in the table below.








Stock
Old PT
New PT
Rating


Advance Auto Parts (AAP)
N/A
$200
Equal Weight


AutoZone (AZO)
N/A
$2,350
Overweight


O'Reilly Automotive (ORLY)
$800
$750
Overweight


Carvana (CVNA)
$65
$35
Equal Weight


Bed Bath & Beyond (BBBY)
$10
$5
Underweight


RH (RH)
N/A
$400
Overweight


Wayfair (W)
$65
$50
Equal Weight


Williams Sonoma (WSM)
N/A
$135
Equal Weight


Floor & Decor Holdings (FND)
$105
$95
Overweight


Lowe's Companies (LOW)
$260
$240
Overweight


Best Buy Company (BBY)
N/A
$82
Equal Weight


JOANN Inc. (JOAN)
N/A
$5
Equal Weight