3 Retail Stocks to Consider as Markets Finish the Week at Record Levels

The major indexes flexed to new highs today as White House economic advisor, Larry Kudlow, announced that the US and China are getting closer to reaching a trade deal. The announcement helped quell worries about an impending economic contraction that has plagued the markets with volatility.

Additionally, the US Department of Commerce reported that retail sales, purchases at stores, restaurants, and online, rose a seasonally adjusted 0.3% in October after a drop in September. Consumer spending at gas stations and on food and beverages rose by 1.1% and 0.5%, respectively, as shopping for necessities helped drive the overall advance in sales. Spending on big-ticket items in October was mixed. Vehicle sales were up 0.5%, while furniture and home furnishing sales dropped 0.9%.

With a potential trade deal on the horizon and reassuring economic data from the Department of Commerce, the retail sector is looking rejuvenated going into the busiest shopping season of the year.

Casey’s General Stores CASY is coming off a quarter where both its top and bottom-lines grew Y/Y. The growth in grocery and prepared food same store sales drove the surge in earnings. The company’s bottom-line growth has been a welcomed sight as Casey’s has seen its shares rise over 32% YTD, outpacing the broader wholesale market’s 21.5% run. The company has also been in expansion mode; in fiscal 2019, Casey’s constructed 56 new stores and acquired 24.

Our Q2 consensus estimates call for net sales to grow about 1% to $2.56 billion and for earnings to climb 17.78% to $2.12 per share. Casey’s also has a solid history of earning beats with an average EPS surprise of 30.15% over the past four quarters. The company’s continued strides towards stronger profits and expansion efforts should help bring the business to the next level. Additionally, the rise in consumer spending at gas stations makes it an opportune time to bet on Casey’s General Stores. Casey’s has had its earning estimates revised higher and is a Zacks Rank #1 (Strong Buy) pick.

Sonic Automotive SAH is a company that has been on an absolute tear lately, with shares up more than a whopping 148% year-to-date. Last quarter, the automotive retailer blew by Wall Street estimates and continued to see captivating results from its EchoPark expansion. The EchoPark pre-owned vehicle chain continues to bolster the retailer’s bottom-line and management said it’s on track to bring in $1.2 billion for full year 2019, which would represent a 71% increase over 2018 annual revenues.

Our Q4 consensus estimates forecast a bottom-line hike of 13.16% to $0.86 per share and net sales are expected to gain 7.44% to $2.77 billion. With big ticket items like vehicles still growing, Sonic Automotive can help investors cash in on the bullish vehicle market. The stock’s current forward multiple is still below the non-food retail market’s average, which provides a solid entry point to a stock that looks poised to continue its remarkable run. SAH sits at a Zacks Rank #1 (Strong Buy).

Target TGT is a solid move to make after retail sales ticked up last month and especially with the upcoming holiday season. Target is usually a consistent destination on holiday shoppers’ itineraries, which puts it in a position to cash in on holiday shopping. Its stores offer one-stop convenience shopping for just about anything a holiday shopper would be looking for. In particular, Target’s partnerships with Toys R Us and Disney DIS should help the retailer cash in on the lucrative toy market during the holiday season.

Target has seen its shares skyrocket over 71% in 2019 thus far and is currently hovering just below its 52-week high of $114.83. The retailer is reporting its third quarter results soon, which could see a boost from the back to school season. A strong quarterly report could send the stock surging to new highs and put it in a great position as it enters the holidays. Our full fiscal year estimates project earnings to climb 14.47% to $6.17 per share and for net sales to rally 3.95% to $78.33 billion. Target is currently listed as a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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