In a world of retail "winners and losers" Goldman Sachs is betting on big-box retailers it feels will shoot up over the next year.
The firm recommends Target, Costco, Home Depot and Walmart among others because of their strong market share growth, defensiveness against uncertainty over the trade war with China and years of investments finally paying off.
"We are at an inﬂection point for several companies where we are starting to see a resumption of operating income dollar growth; demonstrating not only the strong top line execution but also a point of leveraging years of investment to become true omni-channel retailers," Goldman's Kate McShane said in a note to clients on Thursday.
McShane said the stocks that demonstrate these points will be the best-performing stocks for the next 12 months.
Most retail management's comment are positive about the current macro environment, McShane said. After a failed trade deal between the U.S. and China and tariffs slapped on by both countries, investors are worried about retailers passing costs onto consumer.
"Management's bigger worry is the impact it will have on the overall consumer wallet," said McShane.
Target is Goldman's "best idea," because of sustained strong comp growth "accompanied by ongoing store closures and bankruptcies of other brick and mortar retailers," said McShane. Goldman said there is more earnings per share upside for the already well-performing stock.
"We note that the Street remains mostly Neutral rated on the name; but we would argue Target has ﬁnally reached that turning point in their earnings trajectory they have been working towards for the last 3 years," said McShane.
Williams-Sonoma is Goldman's "most out of consensus idea" because tariff concerns have scared investors away from the stock. BJ's is Goldman's best small-cap idea because "the Club model continues to have the best attributes of all retail," said McShane.
— With reporting from CNBC's Michael Bloom.