With Q3 earnings season nearly over, the focus is likely to shift to the retail sector, which hogs all attention with the advent of the holiday season. Retail stocks get a thrust during this busiest part of the year, which is often a make-or-break time for retailers. As the countdown to Black Friday begins, investors also scurry for bright spots in the space.
Eye-popping Black Friday deals usher in 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 will certainly be tough, be it at the brick-and-mortar stores or online portals.
Per the survey conducted by RetailMeNot, consumers are likely to spend an average of $743 this year during the Black Friday weekend through Cyber Monday up from the prior-year figure of $505.
Retailers such as Amazon AMZN, Best Buy BBY, Target TGT and others 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, and developing fulfillment centers to enable speedy delivery.
Retail Space Rides on Favorable Indicators
The rebound in oil prices from all-time lows, an improving labor market, along with a rising housing market and manufacturing sector signal that the economy is in recovery mode that rose 3% in the third quarter of 2017. Further, the Fed’s indication of a likely rate hike in December reflects the underlying fundamental strength of the economy.
Analysts believe that buoyant stock market, gradual wage acceleration, fall in the unemployment rate to 17-year low, and a lift in the economic activity post hurricanes were enough to boost consumer confidence. We anticipate 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.
The nation's largest retail trade group, 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%. Data compiled by eMarketer forecasts 3.1% jump in holiday sales (November and December) to $923.15 billion, while retail e-commerce holiday season sales are anticipated to rise 16.6%.
Indeed, shopping season is likely to be more blissful for retailers. So, how about betting your bucks on lucrative options?
4 Prominent Picks
Here we have highlighted four Retail/Wholesale stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM 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.
RH RH, a home furnishing retailer, is a lucrative option. The stock has a long-term earnings growth rate of 29.3% and a VGM Score of A. We note that in a year, the stock has soared over 100%, while the industry has gained 1.7%. The company has delivered an average positive earnings surprise of 21.7% in the trailing four quarters. It carries a Zacks Rank #2. 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 VGM Score of A and a long-term earnings growth rate of 9%. In a year, this Zacks Rank #2 stock has advanced roughly 25.4%, while the industry witnessed a decline of 22.1%. This children's specialty apparel retailer delivered an average positive earnings surprise of 14% 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 13.4% and a VGM Score of B. The company has delivered an average positive earnings surprise of 3.9% in the trailing four quarters. It carries a Zacks Rank #2. We note that in a year, the stock has advanced approximately 30.2%, while the industry has gained 23.2%.
Investors can count on Wal-Mart Stores, Inc. WMT that has a long-term earnings growth rate of 6.1% and a VGM Score of B. In a year, this Zacks Rank #2 stock has increased roughly 39%, while the industry advanced 29.3%. This operator of discount stores, supermarkets, hypermarkets and warehouse clubs delivered an average positive earnings surprise of 2.2% in the preceding four quarters.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Home Depot, Inc. (The) (HD) : Free Stock Analysis Report
Children's Place, Inc. (The) (PLCE) : Free Stock Analysis Report
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
Wal-Mart Stores, Inc. (WMT) : Free Stock Analysis Report
Target Corporation (TGT) : Free Stock Analysis Report
Restoration Hardware Holdings Inc. (RH) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research