After the much-talked about Presidential election wherein Donald Trump triumphed over Hillary Clinton, the focus is back on the retail sector. Retail stocks get a push during the holiday season, which is a make-or-break time for retailers. As the countdown to Black Friday begins, investors too scurry for bright spots in the space.
Eye-popping Black Friday deals are the next most important to the Christmas shopping bonanza. Apart from price-matching policies, retailers try to sweep buyers off their feet with early-hour store openings, huge discounts, promotional strategies and free shipping on online purchases. Competition is at its peak as retailers cross swords.
With the mood all set, retailers are efficiently allocating a large chunk of their capital toward a multi-channel growth strategy focused on improving merchandise offerings, developing IT infrastructure to enhance the web and mobile experience of customers, renovating stores with a modern look, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system as well as enhancing their relationship with existing and new customers.
Retail Sector Holds the Baton
The recent rebound in oil prices, a favorable labor market, along with a gradual improvement in the manufacturing sector and housing market are signals that the economy is on a recovery mode, and undoubtedly the retail sector presents itself as a lucrative investment hub amid such a backdrop. These factors are playing a crucial role in raising buyers’ confidence. Consumer sentiment improved to 91.6 in November from October's final reading of 87.2.
We expect this positive sentiment to translate into higher consumer spending, which accounts for about two-thirds of the U.S. economic activity. Consumer spending increased 0.5% in September. The optimism related to a strong holiday season gets a further boost from the recent retail sales data. The Commerce Department unveiled that retail sales grew 0.8% in October following an increase of 1% in September.
With the ability and willingness among consumers to spend more, retailers could hear their cash registers jingle this season. Data compiled by eMarketer suggest a 3.3% jump in holiday sales (November and December) to $884.5 billion. Retail eCommerce holiday season sales are anticipated to increase 17.2%, and would represent approximately 10.7% of total sales this season (or $94.71 billion).
Data compiled by the nation's largest retail trade group, National Retail Federation, project a 3.6% rise in November and December sales (excluding autos, gas and restaurant sales) to $655.8 billion, which is far better than the 10-year average sales growth of 2.5%. Non-store sales for the season are expected to increase 7–10% to approximately $117 billion.
5 Prominent Picks
With the advent of the holiday season, the retail sector is likely to take the center stage. So, how about betting your bucks on lucrative options? Here we have highlighted five Retail/Wholesale stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of “A” or “B.”
Investors can count on Best Buy Co., Inc. BBY, a retailer of technology products, services, and solutions that posted an average positive earnings surprise of 25.7% in the trailing four quarters. The stock has a VGM Score of “A” and a long-term earnings growth rate of 11.4%. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
We suggest investing in The Children's Place, Inc. PLCE, with a long-term earnings growth rate of 10.3% and a VGM Score of “A.” This specialty retailer of children's apparel delivered an average positive earnings surprise of 36.3% in the trailing four quarters and flaunts a Zacks Rank #1.
Burlington Stores, Inc. BURL, a retailer of branded apparel products, is a solid bet, with a Zacks Rank #2 and a VGM Score of “A.” The company posted an average positive earnings surprise of 16.1% in the trailing four quarters and has a long-term earnings growth rate of 18.4%.
Another stock that investors may consider is Dick's Sporting Goods Inc. DKS, with a Zacks Rank #2, a long-term earnings growth rate of 12.7% and a VGM Score of “B.” This sporting goods retailer delivered an average positive earnings surprise of 8.8% in the trailing four quarters.
Last but not the least is Target Corp. TGT, with a Zacks Rank #2, a long-term earnings growth rate of 8% and a VGM Score of “A.” The company, which operates as a general merchandise retailer, posted an average positive earnings surprise of 9.9% in the trailing four quarters.
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