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Let Your Portfolio Jingle in December: 4 Retail Stocks to Buy


Standing on the first day of the last month of 2017, we can say that this year has been a blissful one for investors with markets attaining new highs. Evidently, the market has been on a roll, buoyed by an improving U.S. economy, favorable earnings reports and a supportive monetary policy.

Encouragingly, the latest GDP data suggests that the U.S. economy improved at a better-than-expected rate in the third quarter, also marking its fastest pace over the past three years. Per the Bureau of Economic Analysis, the second estimate for the third-quarter GDP jumped at an annual rate of 3.3%, courtesy of higher business investments and favorable government spending. An improved labor market and increased consumer spending has also been driving the economy, which saw growth of at least 3% for the second straight quarter.

Moreover, Fed Chair’s comment, "the economy will continue to expand” ushers in positive sentiment among investors, who now have plenty of investment opportunities this month before they bid adieu to 2017. To top it, Trump’s proposed tax cut is expected to provide further impetus to the already buoyant market.

Retail Seems to be the Season’s Demand

Yellen’s comment: “the economic expansion is increasingly broad-based across sectors," deems fit at the current juncture. That said, let’s move our focus to the Zacks Retail – Wholesale sector which looks quite well-placed for December, thanks to the bolstered consumer confidence and solid prospects from the holiday season. Incidentally, the sector has rallied 28.8% this year, surpassing the S&P 500’s upside of 20.1%.

Bullish markets, gradual wage improvement, rising economic activities after hurricanes and falling unemployment rate has boosted consumer sentiment. This is clearly visible from the recent Consumer Confidence data, which reached its highest level in almost 17 years. Per the Conference Board data, the Consumer Confidence Index surged to 129.5 in November from October’s revised reading of 126.2.

This clearly signals consumers’ willingness to spend more this holiday season, which is the most crucial period for retailers, as it accounts for a sizeable chunk of yearly revenues and profits. Fortunately, it commenced on a good note this year, as reflected by National Retail Federation’s (NRF) data for the five-day period stretching over Thanksgiving to Cyber Monday. Also, NRF’s sales projection (including e-commerce) for November and December bodes well for the retail space.

From Amazon AMZN to Target TGT, retailers are gearing up for the busiest part of the year, and with digital transformation in shopping, they are fast adopting the omni-channel mantra. Having said that, we believe the sector offers lucrative opportunities for investors to make their Christmas holidays special.

Your Holiday Shopping Stock Buys for December

We have identified four rock-solid stocks from the Retail – Wholesale space, with a favorable Zacks Rank. Boasting impressive fundamentals and a splendid earnings surprise history, these stocks have surged more than 20% so far this year.

Starting with Wal-Mart Stores Inc. WMT, the company has seen its shares rally 43.6% so far this year, crushing the industry’s growth of 33.4%. We note that this supermarket giant has delivered nine straight quarters of positive earnings surprises, driven by its aggressive expansion in the e-commerce space. These factors, along with management’s recently raised guidance for fiscal 2018 make this big-box retailer a solid bet. Walmart, which carries a Zacks Rank #2 (Buy) has long-term earnings per share growth rate of 6.1%. You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors can also count on Burlington Stores, Inc. BURL, which has surpassed earnings estimates for 12 consecutive quarters now. Further, Burlington has been doing well on the revenue front, backed by its solid strategic initiatives. These factors have helped this Zacks Rank #2 stock soar 25.5%, faring better than the industry that advanced 10.3%. Additionally, this retailer of branded apparel products has a long-term growth rate of 17.5%.

Five Below, Inc. FIVE is another solid pick with long-term growth rate of 28.5%. This Zacks Rank #2 company’s impressive merchandise assortment, focus on pre-teen customers and favorable pricing strategy help it stand strong amid a tough retail landscape. This is evident from the Five Below’s stellar past record. Notably, the company has delivered positive earnings surprises for nine quarters in a row now, helping its stock soar 54.7% year to date, as against the industry’s ’s decline of 13.4%.

Finally, investors can invest in Dollar Tree, Inc. DLTR, which carries the same Zacks Rank as the aforementioned stocks. This operator of discount variety stores has topped earnings estimates in three out of the past four quarters, while posting 39 straight quarters of positive same-store sales growth. Thanks to these solid metrics and the recently raised outlook for fiscal 2017, shares of the company have gained 33.1% this year, outperforming the industry’s growth of 10.4%. Dollar Tree’s long-term growth rate of 13.1% also bodes well.

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