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Market Reaches New Milestone: 4 Retail Growth Stocks to Buy


Barring a few hiccups, the U.S. stock market has displayed a decent run since the start of 2017. The Dow Jones Industrial Average has advanced 14.7%, the S&P 500 has gained 13.4%, while the tech-laden Nasdaq Composite Index has surged 21.4% so far this year. With plenty of positive news — Trump’s ambitious tax plan, surge in factory activity to a 13-year high last month, uptick in construction activity and optimism surrounding the upcoming earnings reports — the rally is expected to continue.

Though the stock market currently looks bullish, one can’t ignore the fact that the three major indices are trading close to their 52-week highs that is at lofty valuations. If the major indices breach their set benchmark, it is likely to boost the risk appetite of investors.

Until this happens, you can fine tune your portfolio with growth stocks. These are generally hot and flourishing stocks with earnings growth potential. Among the 16 Zacks categorized sectors, we are focusing on Retail-Wholesale. The sector has gained 18.8% so far in the year and has comfortably outperformed the S&P 500. Although the sector occupies the bottom 13% position (14 out of 16) in the Zacks classified list, it still holds promise given the favorable economic indicators.

Retail Space Rides on Favorable Indicators

The rebound in oil prices from all-time lows, improving labor market, and rising housing market and manufacturing sector signal that the economy is on a recovery mode that rose 3.1% in second-quarter 2017, marking the best growth in three years. Further, the Fed’s indication of a likely rate hike in December implies the underlying fundamental strength of the economy.

Steady job additions and gradual wage acceleration boost consumer confidence. We expect this positive sentiment to translate into higher consumer spending that may help increase sales in the current retail landscape, which is witnessing a sea change with the focus gradually shifting to online shopping.

Incidentally, most retailers have adopted the omni-channel mantra, and also recorded solid bumps in e-commerce sales this year. With the holiday season approaching, these factors are favorable for retailers, who make the most of the season.

National Retail Federation projects a 3.6-4% rise in November and December sales (excluding autos, gas and restaurant sales) to $678.75-$682 billion, up from $655.8 billion last year and better than the five-year average sales growth of 3.5%.

Check These 4 Growth Stocks

Here we have highlighted four Retail/Wholesale stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of A or B. These stocks are backed by sound fundamentals, surging share price and a track record of better-than-expected results. Not only this, these stocks have outperformed their respective industries.

Domino's Pizza, Inc. DPZ has emerged as a strong contender with a long-term earnings growth rate of 16.6% and a Growth Score of B. In a year, the stock has surged roughly 33.4%, comfortably outperforming the industry’s growth of 9.9%. The pizza delivery company delivered an average positive earnings surprise of 6.8% in the trailing four quarters and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

We also suggest investing in The Children's Place, Inc. PLCE with a Growth Score of A and a long-term earnings growth rate of 9%. In a year, this Zacks Rank #2 stock has advanced roughly 50.7%, while the industry witnessed a decline of 27.8%. This children's specialty apparel retailer delivered an average positive earnings surprise of 16.3% in the preceding four quarters.

Another lucrative option is The Home Depot, Inc. HD, which operates as a home improvement retailer. The stock has a long-term earnings growth rate of 13.5% and a Growth Score of A. The company has delivered an average positive earnings surprise of 3.8% in the trailing four quarters and carries a Zacks Rank #2. We note that in a year, the stock has advanced approximately 27%, while the industry has gained 20.8%.

Investors can count on Five Below, Inc. FIVE that has a long-term earnings growth rate of 28.5% and a Growth Score of A. In a year, this Zacks Rank #2 stock has increased roughly 36.4%, while the industry witnessed a decline of 14.9%. This specialty value retailer delivered an average positive earnings surprise of 8.7% in the preceding four quarters.

4 Stocks to Watch After the Massive Equifax Hack

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