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If you're looking for the best retail stocks to buy, your job's gotten much more challenging as we move into the second half of 2022. Inflation, higher interest rates, a divided country, the list goes on. 

One decision would be to avoid retail stocks altogether. After all, consumer confidence hit a 16-month low and is near its lowest point in a decade. When consumers are scared, their wallets tend to shut tight. 

Another possibility is to bet on retail stocks with a better chance of winning sales in this economic environment. While no company is immune from this issue, some tend to do better than others when the consumer is worried. 

The last time consumers were this spooked was in 2013. Therefore, it might make sense to go back and find out which retail stocks did well that year. 

The last option, probably the best, is to buy retail stocks whose companies are well run. These are my top seven.

Academy Sports and Outdoors (ASO)

Academy Sports and Outdoors (NASDAQ:ASO) is a sporting goods and outdoor recreation retailer with 260 stores across 16 states. It's in the process of ramping up its store expansion. The company plans to open 80 to 100 stores in the next five years. Eight of these store openings will take place in 2022. 

In my experience, the sporting goods industry is one of the most stable regarding growth. Never too much. Rarely too little. Often just right.

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When you look at its latest quarterly report – sales fell 7.1% to $1.47 billion with a 7.5% decrease in same-store sales growth – you might wonder why I've put it on my list. 

Three words: free cash flow (FCF). In the trailing 12 months (TTM) ended April 30, its FCF was $470 million. That's 15% of its market capitalization of $3.3 billion. I consider anything over 8% to be in value territory. 

Down 15.8% year-to-date, ASO is an excellent value play for anyone looking at retail stocks to buy.  

Bath & Body Works (BBWI)

I suppose it's possible that Bath & Body Works (NYSE:BBWI) will go out of style, and people will stop shopping for body lotion, liquid hand soap, and all the other nice-smelling products it sells. However, the odds are pretty low.

In an environment where people are cutting back their spending, its products are a relatively inexpensive way to treat yourself. 

Of the 20 analysts who cover BBWI stock, 18 rates it either a "buy" or "overweight," with a median target price of $63.50. The lowest target price by an analyst is $40, 38% higher than where it recently traded. 

When Bath & Body Works reported its Q1 2022 sales in May, it blew the lid off its guidance. Between Q1 2019 and Q1 2022, BBWI grew its sales by more than 55%. Meanwhile, its net income from continuing operations increased 72% during the quarter to $154.9 million from $90.3 million a year earlier. 

As for my favorite metric, the company's TTM FCF is $1.02 billion, 15.4% of its current market cap. BBWI might be an even better value than ASO. 

Deckers Outdoor (DECK)

While UGG might be the best-known brand made by California-based Deckers Outdoor (NYSE:DECK), the company's Hoka performance footwear brand has stolen the show. 

Deckers acquired Hoka One One in April 2013. At the time, Hoka had annual revenue of approximately $3 million. Deckers' management thought its yearly sales could get to $100 million someday. In fiscal 2022 (March 31 year-end), Hoka's sales were $892 million, almost 9x its original target. By fiscal 2023, Decker's will have two billion-dollar brands. 

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Over the past 52 weeks, DECK stock has lost 31% of its value. It recently traded at 42% of its 52-week high of $451.49. The company has $454 million left on its stock repurchase authorization. In fiscal 2022, it bought back $357 million of its stock. Given the price drop, I imagine it will buy more than that here in fiscal 2023.

In 2023, it expects sales of at least $3.45 billion, almost 10% higher than a year earlier. Its earnings per share are expected to be $17.40 at the low end of its guidance. That's a price-to-earnings ratio of 15.1.

TJX Companies (TJX)

The following two stocks, I would guess, are the two on my list that most investors would expect to be on a list of retail stocks to buy in a period of low consumer confidence. That doesn't guarantee their stocks will do well in the near term, but they've got as good a shot as any to maintain or grow sales levels over the next six to 12 months.

TJX Companies (NYSE:TJX) has become my family's go-to retailer for cat scratching posts and other interesting household products. They can get costly in a hurry. So, the appeal of the off-price retailer's various banners – T.J. Maxx, Marshalls, and HomeGoods in the U.S. – is unlikely to fade anytime soon.

In Q1 2023, TJX's net sales increased 13% to $11.3 billion, with an adjusted pre-tax margin of 9.4%. It expects its pre-tax margin in 2023 to be 9.7% at the midpoint of its guidance, with a 1-2% increase in same-store sales.    

TJX CEO Ernie Herman is pleased with the company's profitability. Ditto for investors.

Dollar General (DG)

Dollar General (NYSE:DG) recently got a boost from Morgan analyst Simeon Gutman. The analyst upgraded DG stock on June 16 from "equal-weight" to "outperform" with a price target of $250, $25 higher than the previous target. 

"DG fits our theme of favoring quality, defensive retailers with offensive characteristics. It is arguably our most defensive, counter-cyclical company," Insider reported Gutman said in a note to clients. 

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Like most retailers, Dollar General is facing all kinds of headwinds in 2022, making revenue and profit growth a problematic task. 

Nonetheless, in Q1 2022, it managed to increase sales by 4.2% to $8.8 billion. Sales increased due to the addition of 239 new stores during the quarter. Its operating profit fell 17.9% to $746.2 million, a respectable operating margin of 8.4%. 

For all of 2022, it expects net sales to increase 10.25% at the midpoint of its guidance with a 13% increase in earnings per share. 

If you want to play it safe, DG is about as safe as it gets.

Asbury Automotive Group (ABG)

Asbury Automotive Group (NYSE:ABG) completed 2021 with a bang, acquiring 54 new vehicle dealerships on Dec. 21, 2021, from the Larry Miller Group. Asbury paid $5.7 billion for the transformative acquisition that included seven used vehicle dealerships, 11 collision centers, a used vehicle wholesale business and a financing and insurance (F&I) product, provider.

The company made acquisitions in 2021 that added $5.8 billion in annualized revenue. That's more than a third of its pro-forma revenue in 2021. 

The word "scale" is often used in business. It's become a bit of a cliche. However, when it comes to automotive retail, it's essential. That's because a big chunk of a car dealer's revenue comes from parts and services. In Asbury's case, it accounted for 35% of its overall revenue in Q1 2022. It also accounted for 35% of gross profit. 

Meanwhile, its F&I business accounted for just 5% of revenue in the first quarter but 24% of its gross profit. It's the behind-the-scenes stuff that matters. You can only generate so much parts and service revenue from a single dealership. Multiply that by 148 dealerships, and the dollars add up quickly. 

Asbury's transformation is worth betting on trading at 0.32x sales and possessing an earnings yield of 20.4%, Asbury's transformation is worth betting on. 

O'Reilly Automotive (ORLY)

O'Reilly Automotive (NASDAQ:ORLY) is a stock that's been on my radar for some time. In October 2020, ORLY was one of 10 consumer stocks I recommended to readers, providing a good mix of offense and defense. 

"With $1.8 billion in free cash flow in the trailing 12 months, double what it was just two years ago, ORLY is growth at a reasonable price," I wrote at the time. 

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Its share price is up 36% since, despite the correction here in 2022. I don't see a problem owning this stock for another 21 months or longer. It's well-positioned to benefit from the do-it-yourself crowd should a recession rear its ugly head.  

Oh, and about that free cash flow. Its TTM FCF is $2.55 billion, 42% higher than in 2020. O'Reilly expects FCF in 2022 of $1.3 billion to $1.6 billion. 

As for the 25 analysts covering its stock, the average rating is "overweight," with a median target of $750. 

ORLY is another defensive stock you can count on. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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