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4 Retail Stocks That May Find Favor with Brokers in 2018

Zacks

The Retail-Wholesale sector is hogging all the attention, and this time for good reasons. For the time being, the expression "retail apocalypse” appears to be a thing of past. The sector has certainly been bearing the brunt of heightened online competition, lower footfall and changing consumer spending patterns but of late the tables are turning in favor of the retailers. Stocks once bogged down by tough environment are now suddenly climbing the charts.

The first and foremost reason for the same is that retailers are efficiently allocating a large chunk of capital toward multi-channel growth strategy focused on improving merchandise offerings, and developing IT infrastructure to enhance the web and mobile experience of customers. Further, the retailers are renovating stores, developing fulfillment centers and implementing an enterprise-wide inventory management system.

Another reason for the same is the latest tax reform that has resulted in lowering the corporate tax rate to as much as 21%, and retailers will be the beneficiary of the same. Analysts believe that a lower tax burden is likely to allow them to channelize the surplus money to best possible options. They may go for a dividend hike, or reduce debt load, or create a corpus to fund acquisitions, or invest in enhancing omni-channel capabilities, new product launches and any other innovations.

The last factor that has also played a major role in grabbing investors’ attention to the sector is the blissful holiday season. Per MasterCard SpendingPulse report, retail sales during the holiday period jumped 4.9%, marking the biggest year-over-year uptick in holiday spending since 2011. Retailers such as Urban Outfitters URBN and Kohl’s Corp. KSS registered sales growth of 3.6% and 6.9%, respectively, during the November-December period, while both J. C. Penney JCP and Target TGT recorded comparable store sales growth of 3.4%.


How Is the Sector Placed?

The sector, which currently occupies the top 19% (3 out of 16) position in the list of 16 Zacks categorized sectors, has advanced 33% in a year and comfortably outperformed the S&P 500’s gain of 21.5%. We believe that given the favorable economic indicators the sector holds promise for 2018.

The rebound in oil prices from all-time lows, fall in the unemployment rate to 17-year low, and improving housing and manufacturing sectors signal that the economy is on a recovery mode. These factors are favorable for retailers. Steady job additions and gradual wage acceleration boost consumer confidence. Although consumer confidence dipped to 122.1 in December from November’s revised reading of 128.6, analysts believe that consumers remain optimistic about the economy.

Consequently, adding a few stocks from the space would be a prudent decision at the current juncture. Here we have highlighted four Retail-Wholesale stocks that have a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) and have been given a Strong Buy/Buy rating by 70% or more brokers.

4 Prominent Picks

We suggest investing in Conn's, Inc. CONN with a long-term earnings growth rate of 23%. In a year, the stock has zoomed over 160%, outperforming the industry’s growth of 48.6%. This specialty retailer of durable consumer goods and related services has an outstanding positive earnings surprise in the trailing four quarters. The stock currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Strong Buy or Buy broker rating: 75%

Investors can count on Beacon Roofing Supply, Inc. BECN with a long-term earnings growth rate of 15%. In a year, this Zacks Rank #1 stock has advanced roughly 46.4%, compared with the industry’s growth of 36%. This distributor of residential and non-residential roofing materials, and other complementary building materials delivered an average positive earnings surprise of 6.4% in the preceding four quarters.

Strong Buy or Buy broker rating: 73.3%

McDonald's Corp. MCD has also emerged as a strong contender with a long-term earnings growth rate of 8.8% and a Zacks Rank #2. In a year, the stock has surged roughly 44.6%, comfortably outperforming the industry’s growth of 20%. This fast-food chain delivered an average positive earnings surprise of 5.2% in the trailing four quarters.

Strong Buy or Buy broker rating: 84%

Another solid bet is Boot Barn Holdings, Inc. BOOT, which has a long-term earnings growth rate of 15.7%. In a year, the stock has advanced approximately 49.6%, while the industry declined 2.3%. This lifestyle retail chain carries a Zacks Rank #2.

Strong Buy or Buy broker rating: 71.4%

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