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Leon’s Furniture (TSE: LNF) is a Canadian success story.

Founded in 1909 by Lebanese immigrant Ablan Leon, the company went public in 1969. Most shares of the furniture retailer remain held by the Leon family today.

Leon’s has spread its way from Southwestern Ontario to all 10 Canadian provinces, helped along by a C$700-million acquisition of rival firm The Brick in 2012. Along with integrating The Brick, Leon’s has undergone a digital transformation of sorts over the past decade, investing heavily in e-commerce and even an augmented reality shopping experience.

Nevertheless, while brick-and-mortar retailers have been under pressure in recent years from the rise of e-commerce, there remain certain advantages to in-person shopping, especially regarding furniture.

Getting to see the exact product you’re buying, along with its exact measurements, can give shoppers more security when purchasing expensive living room sets, for example. This benefits Leon’s, which has a vast array of physical locations.

With Canada undergoing a real estate surge, logic also dictates that many would-be home buyers might prefer to renovate and revamp their current living spaces.

While Leon’s impressive balance sheet and hefty income prospects are promising factors, increasing competition in a tricky industry are issues weighing on the stock, which has sunk by around 13% year-to-date.

Weighing that all into consideration, I am bullish on Leon’s.

Strong Management

Management handled its acquisition of The Brick well, making Leon’s the largest furniture, appliance, and electronics retailer in Canada.

Of the 306 retail locations across Canada owned by Leon’s, about two-thirds of them are under The Brick branding, especially in Western Canada. 

Since most of the company’s shares are owned by the Leon family, management knows the industry very well, and it is likely to remain stable for the foreseeable future.

Leon’s released its Fiscal 2021 earnings at the end of February, with a record C$3.1 billion in system-wide sales, a year-over-year increase of 13.2%. 

Other highlights for the year were a 27.5% growth in adjusted diluted earnings per share to C$2.60 and a 26.9% increase in net income to C$205.5 million.

Competition

Of the C$11.6 billion dollars spent on furniture in Canada in 2020, Leon’s took in $2.2 billion, a market share of about 18% in a very competitive space.

This is a slight drop from the 19% it earned in 2019, with Canadians spending C$11.85 billion on furniture that year.

Leon’s has to compete with massive online and brick-and-mortar retailers like Amazon (AMZN) and Walmart (WMT) while holding off smaller boutique options or specialty stores like Sleep Country Canada (TSE: ZZZ).

Dividend

Leon’s pays a quarterly dividend of C$0.16 per share, for a 3.1% forward dividend yield. When including the special dividend that was paid out last year, its dividend yielded near 9%. That is above the sector average in Consumer Goods of 1.5% by quite a bit.

The payout ratio of 72.5% is certainly elevated, though the company did report C$486.6 million in cash and investments on hand at the end of Fiscal Year 2021. 

Given that Leon’s only spent C$210.6 million on dividends and buybacks through all of FY 2021, the current dividend should be safe going forward.

Insider Activity

Those within the company have enough reason to be optimistic regarding Leon’s fortunes, to the tune of spending C$147,300 on shares over the past three months.

We’re able to track insider buying and selling thanks to TipRanks’ Insider Trading tool, which shows us that the most recent selling action by an insider was done by Terrence Thomas Leon, the company's vice chairman, all the way back in November.

However, that same insider bought C$42,500 worth of shares in March.

While it would never be prudent to invest based solely on one indicator, the fact that insiders are almost entirely buying into the company is generally a good sign.

Wall Street’s Take

Leon’s stock doesn’t have much of an analyst following.

The company has a Hold rating consensus on TipRanks, due to one Hold rating assigned.

That Hold rating – delivered by near-five-star analyst Stephen Macleod of BMO – does have a price target of C$28, which suggests 34.9% upside potential.

Conclusion

Vouching for a legacy brick-and-mortar retailer isn’t easy these days, but Leon’s has enough going for it that it’s worth looking into, especially given the stock’s performance over the last few months.

Management is “cautiously optimistic” going into FY 2022 due to uncertainties surrounding the Canadian economy, as the COVID-19 pandemic continues to disrupt supply chains and purchasing behavior.

It also remains to be seen how successful the company’s investments in modernizing its customers’ experiences will be over the long term. One investment, which uses augmented reality to allow shoppers to use their phones to “place” a piece of furniture in a room inside their homes, made its debut in the latter half of 2019.

This likely isn’t a stock that’s going to explode in value any time soon, but there are reasons to believe it belongs inside the portfolio of a patient, long-term investor.

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Many people only want to own "safe," "mature," or "boring" stocks, and they ignore the opportunities in the risky side of the stock universe. What this does is create a pool of risky stocks with huge potential upside. And often these stocks can be bought relatively cheaply, which

Few stocks in this market have been more resilient than Costco (COST), which broke out to a new high above $600 per share just last week.

There's no question that consumers are not taking inflation, which recently surged to 8.5%, lightly, doing everything in their power to delay or even resist the recent bout of price increases. It's a daunting task that's becoming harder by the day, though.

With some of the best bargains out there, Costco is one of few firms that may arise out of these inflationary times ahead of the pack. Though recent cost inflation has eaten into the firm's operating margins, I think it's safe to say that Costco is faring far better than most in easing the inevitable sticker shock that's to come.

That's thanks to the company's willingness to absorb some of the earlier impact, reinforcing its reputation as one of the most economical places to get bulk-buying done.

As inflation eases, while the average consumer becomes more willing to pay higher prices, Costco will have the opportunity to build upon its operating margins again as it "stealthily" increases prices across a broader range of products. Arguably, the value of a Costco membership has been enhanced amid the pandemic and inflationary pressures.

Given Costco's incredible operational management, I am bullish on the stock despite its hefty 46.9 times trailing earnings multiple.

Pandemic and High Inflation

Though the pandemic and high inflation have pressured Costco's margins modestly, the bleak environment may actually be viewed as more of a long-term tailwind for the firm.

Indeed, many consumers are discovering the value of their memberships. Arguably, a Costco membership ought to be worth more in times like these, and I'm sure consumers would renew, even if the company were to raise the price of admission modestly.

Still, the company has held back from membership fee price increases, even as its digital retail peer Amazon (AMZN), does so with its Prime membership. Waiting for rivals to increase prices first is a genius move, in my opinion. I think it strengthens the brand, even though a lack of price hikes may come at the cost of results over the nearer term.

The company doesn't need to impress its shareholders with margin-enhancing initiatives, as most other retailers are forced to hike prices and memberships. It's already doing so well by partially sheltering many reluctant consumers from the hailstorm that is inflation.

I've noted in the past that Costco's ability to reduce sticker shock through yet another inflationary pressure will likely make its membership stickier. Why? A Costco membership provides increasing value for its users and the lack of price hikes thus far, I believe, makes the membership a gift that keeps on giving.

Costco Continues Respectable Growth

Costco's robust 14% second-quarter sales surge was remarkable, as too were the 3.5% operating margins, which were sound, given the inflationary headwinds familiar to all retailers.

Potential COVID-19 restrictions and surging food price increases have incentivized buying in bulk in a big way. Buying bulk isn't just a great way to save money and resist the impact of inflation, but loading up on essential foodstuffs is also a wise way to prepare for any future shortages.

Add the potential sales-boosting impact of another wave of COVID-19 (the Omicron BA.2 and XE variants are on watch right now), and it's not a mystery as to why shares of COST still have a respectable amount of momentum behind it.

Further, the potential for cost controls on items like food or gas may backfire, as they could induce shortages.

If inflation cannot be tamed by more traditional means (like Federal Reserve rate hikes), the odds of such cost controls increase, and the days of panic-buying in bulk may not be over, even if COVID is less of a concern than it was just two years ago.

Wall Street's Take

According to TipRanks, COST stock comes in as a Strong Buy. Out of 19 analyst ratings, there are 15 Buy recommendations and four Hold recommendations.

The average Costco price target is $606.58, implying 2.7% upside potential. Analyst price targets range from a low of $527 per share to a high of $678 per share.

Bottom Line on Costco Stock

Despite Costco's operational expertise and talents in steering the firm through inflationary times without having to pass all costs onto its consumers, I think most of such positives are already well baked in here.

Still, given management keeps making the right moves through challenging times, I think the stock deserves its premium. Even in the face of higher rates and a recession, I don't see COST stock slowing down anytime soon. It's incredibly well managed, with unique defensive characteristics.

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No one is immune from higher fuel costs, and this factor is partly why Baird’s 5-star analyst Colin Sebastian has been tweaking his Amazon (AMZN) model.

To account for the rising prices along with “negative trends” in FX rates (a stronger USD) in some of the company’s core international markets, and e-commerce checks which have “suggested some softness through March,” Sebastian has reduced his revenue and GAAP operating income predictions For Q1 and Q2. These now stand at $116.3 billion and $4.7 billion, and $125.7 billion and $6.75 billion, respectively. A portion of revenues should also shift from Q2 to Q3, on the assumption Prime Day takes place in July. Additionally, margin expansion will most likely be capped given the “capacity growth to support AWS.”  

That said, all told, Sebastian thinks Amazon is in a “strong competitive position,” and notes that Q1 online spending trends in North America seem to be “tracking in line” with his 5% growth forecast.

Sebastian also anticipates Amazon will keep on expanding both physical grocery stores and online grocery deliveries, with the analyst thinking a mix of micro-fulfillment/retail stores (the Amazon Fresh and Whole Foods brands) “position the company well for gradual market share expansion with a very large TAM.”

And although there are plenty of issues to mull over in the current uncertain environment, Sebastian urges patience, and sees enough catalysts for Amazon to remain a “top 2022 pick.”

“While investors understandably remain focused on macro-related headwinds, we believe sentiment on AMZN can improve over the course of 2022 on the heels of accelerating Online Retail segment growth coupled with ongoing strong growth in services revenues (AWS, 3P and Advertising),” the top-rated analyst opined. “This should also lead to some modest improvement in operating margins as the company leverages the recent fulfillment and logistics build-out, offset in part by a catch-up in AWS/data center growth.”

To this end, Sebastian maintained an Outperform (i.e., Buy) rating backed by a $4,000 price target. The implication for investors? Upside of ~32%. (To watch Sebastian’s track record, click here)

Amazon tends to attract a lot of attention on Wall Street – the stock has 35 recent analyst reviews on record, and they include 34 Buy ratings against just 1 Sell to give the company its Strong Buy consensus rating. The shares have an average price target of $4,143 and change, indicating room for ~37% growth for the next 12 months. (See Amazon stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

Mary Childs, author of The Bond King: How One Man Made a Market, Built an Empire, and Lost It All, joins Motley Fool producer Ricky Mulvey to talk about PIMCO founder Bill Gross and what retail investors can learn from his story.