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Scoop Up These 5 Retail Stocks for Terrific Q1 Earnings

Wall Street is juggling with various macro and micro issues at the moment, including U.S.-China trade dispute, Facebook data breach, apprehensions about three or more rate hikes by the Fed this year and the rising bond yields. These events have kept the market on tenterhooks with investors scurrying for safe havens, even overlooking the solid start to the earnings season.

Given strong economic fundamentals and lower corporate tax rate, the reporting cycle is likely to be a favorable one and may help override recent market gyrations. Notably, per the latest Earnings Preview , total earnings for the S&P 500 index is expected to rise 18.3% in the first quarter of 2018 - compared with 13.4% in the preceding quarter - on the back of 7.7% year-over-year growth in revenues.

Among the 16 Zacks categorized sectors, we are focusing on Retail-Wholesale .

A Glimpse at the Sector

The retail-wholesale sector has advanced roughly 13% in the past six months, comfortably outpacing the S&P 500's growth of 5%. Markedly, the sector is anticipated to witness bottom-line growth of 11.7% in the current reporting cycle, faring better than the prior-quarter rise of 3%. The top line is also projected to climb 7.6% compared with 9.7% increase registered in the preceding quarter.

Industry experts cited that the sector, which typically performs well in a maturing economic cycle, is likely to benefit from a robust job market, massive tax cuts and gradual wage acceleration. These are likely to boost consumer confidence. We expect this positive sentiment to translate into higher consumer spending, one of the pivotal factors driving the economy. A clear reflection of the same was visible in the March retail sales that advanced 0.6%.

Pick up in retail sales is welcome news for retailers, whose fortunes depend upon consumers' willingness to spend. Consumers now days prefer to shop online from the comfort of their homes rather than hopping from one store to another. With evolving shopping patterns, retailers are also getting smarter embracing the omni-channel mantra to provide a seamless shopping experience, whether in stores or online or through smartphones via apps.

Given the favorable backdrop, the sector is likely to catch investors' attention. So, picking stocks that are likely to trump estimates can fetch handsome returns. This is because a stock generally picks up steam on an earnings beat.

Picking the Prospective Winners for the Season

All said, we used the Zacks methodology and identified retail stocks that not only boast solid fundamentals but are also poised to beat earnings estimates this reporting cycle. Our research shows that for stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP , the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Ruth's Hospitality Group, Inc.RUTH , which is slated to report first-quarter 2018 results on May 4, is a solid bet with a long-term earnings growth rate of 14.3%. The Zacks Consensus Estimate for the quarter is pegged at 44 cents. The company delivered a positive earnings surprise of 12.8% in the preceding quarter. This operator of fine dining restaurants has an Earnings ESP of +1.70% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

You may also consider KAR Auction Services, Inc.KAR with a Zacks Rank #1 and an Earnings ESP of +5.41%. The Zacks Consensus Estimate for the quarter is pegged at 74 cents. The company delivered an average positive earnings surprise of 14.1% in the trailing four quarters. It has a long-term earnings growth rate of 11%. This global vehicle remarketing and technology solutions provider is expected to come out with first-quarter 2018 financial numbers on May 8.

Investors can even count on Urban Outfitters, Inc.URBN with a Zacks Rank #1 and an Earnings ESP of +0.62%. The Zacks Consensus Estimate for the quarter is pegged at 29 cents. The company delivered an average positive earnings surprise of 8.5% in the trailing four quarters. It has a long-term earnings growth rate of 12%. This lifestyle specialty retailer that offers fashion apparel and accessories, footwear and home decor is anticipated to report first-quarter fiscal 2019 results on May 15.

Another lucrative option is Nordstrom, Inc.JWN , a fashion retailer. The stock has a Zacks Rank #2 and an Earnings ESP of +8.97%. The Zacks Consensus Estimate for the quarter is pegged at 42 cents. The company registered an average positive earnings surprise of 16.8% in the trailing four quarters. It has a long-term earnings growth rate of 6%. The company is slated to announce first-quarter fiscal 2018 results on May 17.

Walmart Inc.WMT with a Zacks Rank #3 and an Earnings ESP of +5.05% also deserves a place in your portfolio. The Zacks Consensus Estimate for the quarter is pegged at $1.12. The company delivered an average positive earnings surprise of 1.5% in the trailing four quarters. It has a long-term earnings growth rate of 5.6%. This operator of supercenters, supermarkets, hypermarkets and warehouse clubs is scheduled to come out with first-quarter fiscal 2019 financial numbers on May 17.

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With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

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Nordstrom, Inc. (JWN): Free Stock Analysis Report

Urban Outfitters, Inc. (URBN): Free Stock Analysis Report

Walmart Inc. (WMT): Free Stock Analysis Report

Ruth's Hospitality Group, Inc. (RUTH): Free Stock Analysis Report

KAR Auction Services, Inc (KAR): Free Stock Analysis Report

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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.


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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