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Looking for Value & Earnings Growth? 4 Retail Gems for You

Zacks

"It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price." – Warren Buffett

Smart investors often consider value style as one of the most effective approaches. In value investing, the focus is on stocks that are trading below their inherent worth but are fundamentally sound. An investment decision based on the intrinsic value of stocks seems feasible in an economy which is currently coping with Trump’s tariff threats, possibilities of faster-than-expected rate hikes and a choppy trading month due to mid-term elections.

Nevertheless, these don’t show markedly on the economy for now, courtesy of historic tax cuts, higher government spending and deregulation. Per the second estimate released by the Commerce Department, U.S. economy expanded at an annualized rate of 4.2% during the April-June quarter, the fastest in almost four years. On the whole, the economy expanded 3.2% in the first half of this year, raising hope that it may attain or beat Trump’s target of 3% annual growth.


Its quite obvious, sound economic fundamentals along with gradual wage acceleration, steady job growth and improving consumer sentiment are working in tandem for Zacks Retail & Wholesale Sector. The sector has showcased an improvement of 18% so far in the year, comfortably outperforming the S&P 500’s growth of 8%.

The sector has a direct correlation with the purchasing power of consumers, which is one of the major factors impacting retailers’ performance. In the second quarter of 2018, consumer spending, which accounts for more than two-third of U.S. economic activity, increased 3.8%. Moreover, the National Retail Federation’s projection of a tick-up in U.S. retail sales of at least 4.5% this year hints at increasing basket size and more traffic with retailers as ultimate gainers.

Retailers are deploying resources to enhance omni-channel capacities, introduce brands, remodel or refurbish stores and expand same-day delivery options to expedite the shopping process. No wonder, fueled by the aforementioned underlying strengths, a significant number of companies in the industry have been on a tear. Consequently, adding a few favorably-ranked stocks with a good value score and solid earnings growth potential seems prudent.

We have shortlisted stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Value Score of A or B. Further, they have estimated earnings per share growth rate of 10% or more the current fiscal year.

4 Prominent Picks

We suggest investing in Rush Enterprises, Inc. RUSHA with a long-term earnings growth rate of 15% and a Value Score of A. This integrated retailer of commercial vehicles and related services has delivered an average positive earnings surprise of 34.5% in the trailing four quarters. The stock, which sports a Zacks Rank #1, has estimated earnings per share growth rate of 46.7% for 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.

Another stock worth considering is DSW Inc. DSW, which has a long-term earnings growth rate of 9% and a Value Score of B. This branded footwear and accessories retailer delivered an average positive earnings surprise of 17% in the trailing four quarters. The stock, which flaunts a Zacks Rank #1, has estimated earnings per share growth rate of 14.5% for fiscal 2018.

Investors can also count on Tractor Supply Company TSCO, which operates rural lifestyle retail stores. This Zacks Rank #2 company has a long-term earnings growth rate of 12.8% and a Value Score of B. The company has delivered an average positive earnings surprise of 3.4% in the trailing four quarters. The stock has estimated earnings per share growth rate of 25.8% for 2018.

Target Corporation TGT, which operates as a general merchandise retailer, is a solid bet with a Zacks Rank #2 and a Value Score of A. The company with a long-term earnings growth rate of 6.7% posted an average positive earnings surprise of 1.3% in the trailing four quarters. The stock has estimated earnings per share growth rate of 14% for fiscal 2018.

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