Goldman Gets Bullish Big-box Stores, Like Target, Home Depot, and Walmart

In a world of "winners and losers" in the retail sector, Goldman Sachs is betting on big-box retailers, which it says will see explosive growth in the coming year.

The company recommends among others Target, Costco, Home Depot and Walmart because of the strong growth of their market shares, their defense capacity in the face of an unknown trade war with China and their years of profitable investments.

"We are at an inflection point for several companies where we are starting to see a resumption of growth in operating income in dollars, which demonstrates not only the strong performance of the business, but also the point to take advantage of many years of investment to become true omnichannel retailers, "Kate McShane of Goldman Sachs said in a note to customers on Thursday.

McShane said stocks that demonstrate these points will be the best performing stocks for the next 12 months.

Most of the comments from the retail management are positive about the current macroeconomic environment, said McShane. After an unsuccessful trade agreement between the US and China and tariffs imposed by both countries, investors fear that retailers will transfer costs to consumers.

"The greater concern of management is the impact it will have on the overall consumer portfolio," McShane said.

The target is Goldman's "best idea," because of strong sustained growth in its business, "accompanied by ongoing store closures and bankruptcies from other physical retailers," said McShane. Goldman said that there was more earnings per share up for already performing stocks.

"We note that the street remains essentially neutral on the name, but we could say that Target has finally reached the turning point in the trajectory of its results for which it has been working for three years," McShane said.

BJ's, Lowes, National Vision, O'Reilly Automotive, Tractor Supply and William-Sonoma are also on the Goldman Sachs purchase list.

William Sonoma is Goldman's "most out of the consensus" idea, as pricing concerns have frightened investors. BJ's is Goldman's best small-cap idea because "the club model continues to present the best attributes of any retailer," said McShane.

– with reports from Michael Bloom of CNBC.