Rise in September Sales Makes These 5 Retail Stocks Attractive
Consumer spending activity, one of the pivotal factors driving the economy, remains healthy in spite of the fading of initial coronavirus-relief package. Markedly, U.S. retail sales grew for the fifth straight month in September as Americans continued to flock to restaurants and bars, bought apparels, spent on gasoline, purchased sports equipment, furniture, and splurged on new vehicles.
The Commerce Department stated that U.S. retail and food services sales in September climbed 1.9% to $549.3 billion, following 0.6% gain in the month of August. Economists were anticipating 0.7% jump in retail sales in September, per media reports. Impressively, the number showcased a sharp rebound from a steep fall witnessed in April and March, when strict lockdown measures were imposed to contain the spread of coronavirus and people largely stayed at home.
Industry experts pointed that consumers have been cutting expenditures on pandemic-sensitive services such as travel and entertainment, and redirecting the same to retail space. They even might have been tapping their savings that helped boost consumption activity. Per Financial Times, analysts at Jefferies said, “The September increase may also be partly attributed to delayed back-to-school shopping, as some states pushed back reopenings.”
According to the monthly sales report, 12 of 13 major categories showed sequential growth. Notably, U.S. retail sales improved 5.4% from September last year. Although sales at Internet retailers showed meagre growth of 0.5% during the month under review, the metric rose roughly 23.8% on a year-over-year basis as more and more people opted for e-route over physical retailing amid the pandemic.
Surge in retail sales is a positive indicator ahead of the holiday season, especially when the economy is jostling with increasing coronavirus cases, uncertainties surrounding the new stimulus bill and the recent rise in applications for jobless benefits. We also note that consumer sentiment index inched up to 81.2 in the month of October from 80.4 in September, per a preliminary reading of the University of Michigan.
Experts believe that another new stimulus package and the discovery of a COVID-19 vaccine are paramount to shore up the economy. That said, we have shortlisted five stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
5 Prominent Picks
Target Corporation TGT is worth betting on. This general merchandise retailer has been making investments to enhance omni-channel capacities, come up with new brands, and remodel or refurbish stores to cater to consumer demand and behavior in the new normal. The company’s commitment to offer unique shopping experience with safe and convenient options including contactless Drive Up and Order Pickup, and same-day delivery with Shipt are worth mentioning. The stock has a Zacks Rank #1 and a VGM Score of A. The company has a trailing four-quarter earnings surprise of 37.6%, on average. It has a long-term earnings growth rate of 7.2%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates an improvement of 12.6% and 12.4%, respectively, from the year-ago period.
AutoZone, Inc. AZO, the retailer and distributor of automotive replacement parts and accessories, is also worth considering. High quality products, store-expansion initiatives and omni-channel efforts to improve customer shopping experience are boosting the company’s market share. Inventory assortments, technological advancements and solid reputation of the Duralast brand across the professional customer base are buoying its prospects. The stock with a long-term earnings growth rate of 9.5% has a trailing four-quarter earnings surprise of 9.5%, on average. The company has a Zacks Rank #1 and a VGM Score of B. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests an improvement of 3.1% and 3.6%, respectively, from the year-ago period.
You may invest in Sportsman's Warehouse Holdings, Inc. SPWH, an outdoor sporting goods retailer. The company has a trailing four-quarter earnings surprise of 64.8%, on average. The stock has a Zacks Rank #1 and a VGM Score of A. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 39.7% and 229.8%, respectively, from the year-ago period. The company has been benefiting from rise in outdoor activities, such as fishing, hunting, camping and hiking. Management believes that the addition of participants in outdoor activities bodes well for outdoor specialty retail in general and Sportsman's Warehouse in particular.
Investors can count on Walmart Inc. WMT, the operator of supermarkets, warehouse clubs, cash and carry stores and discount stores. The company has been gaining from rising demand for grocery and general merchandise items amid the coronavirus outbreak. Its e-commerce business is soaring owing to the pandemic-led stay-at-home trends. The company has a trailing four-quarter earnings surprise of 9.5%, on average. It has a long-term earnings growth rate of 5.6%. The stock has a Zacks Rank #2 and a VGM Score of B. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 5.2% and 8.1%, respectively, from the year-ago period.
We also suggest investing in Lowe's Companies, Inc. LOW. Home renovation and maintenance activities have been gaining prominence lately, thanks to increased stay-at-home practices. This trend has been benefiting the company. Lowe’s has been also focusing on enhancing capabilities such as online-delivery scheduling and order tracking. Moreover, with rising demand for contactless services, the company’s latest investment in self-service lockers is another feather in its cap. The stock has a Zacks Rank #2 and a VGM Score of A. This home improvement retailer has a trailing four-quarter earnings surprise of 17.2%, on average. It has a long-term earnings growth rate of 16.6%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates an improvement of 18% and 48.4%, respectively, from the year-ago period.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
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