Retail's Comeback: 3 High-ROIC Stocks That Could Outshine AI

The article identifies overlooked opportunities within the retail sector, highlighting Best Buy, Lululemon, and Bath & Body Works as strong investment candidates due to their robust profitability and high reinvestment rates. Best Buy is leveraging its brick-and-mortar presence for high-value items, maintaining a 20% ROIC. Lululemon, having experienced a tariff-induced sell-off, is presented as a 'buy-the-dip' opportunity with institutional interest growing and a 29% ROIC. Bath & Body Works is poised for significant EPS growth, with a Q4 2025 forecast of $2.08, supported by a 29.5% ROIC and strategic focus on sensory retail.

Analysis

The retail sector, currently overshadowed by investor focus on artificial intelligence and concerns over trade tariffs, presents select opportunities in companies with strong fundamentals. The core thesis centers on high Return on Invested Capital (ROIC) as a key indicator of durable profitability and value-compounding potential. Best Buy (BBY) is successfully leveraging its physical store footprint by focusing on high-consideration products that benefit from in-person evaluation, supporting a robust ROIC of approximately 20%. Lululemon (LULU), despite a significant stock price decline to 53% of its 52-week high following tariff announcements, is viewed as a dislocation opportunity. This view is supported by its 29% ROIC, a 4% decline in short interest, and significant institutional buying, with analyst targets implying a potential 50% upside from current levels. Similarly, Bath & Body Works (BBWI) demonstrates strong capital efficiency with a 29.5% ROIC and is positioned for substantial earnings growth, with analysts forecasting Q4 2025 EPS of $2.08 compared to the current $0.49. This is further reinforced by recent institutional stake increases and the appointment of a new CEO, signaling a focus on operational execution.

Key Decisions for Investors

• Consider the current dislocation in the retail sector as a contrarian opportunity, focusing on companies like BBY, LULU, and BBWI whose high ROIC suggests fundamental strength is being overlooked due to macro sentiment.
• Evaluate Lululemon as a potential 'buy-the-dip' candidate, given the confluence of a tariff-induced sell-off, declining short interest, and strong institutional accumulation, but be prepared for near-term volatility related to trade policy.
• For exposure to resilient brick-and-mortar models, assess Best Buy for its durable strategy and 5.64% dividend yield, and Bath & Body Works for its significant forward earnings growth potential at a low P/E multiple of 8.41.
• Monitor upcoming management commentary from Lululemon on tariff mitigation strategies and track Bath & Body Works' quarterly results to validate the aggressive EPS growth trajectory forecasted by analysts.