Top 3 Retail Stock Picks This Season
Generally touted as “Make or Break”, the last holiday season was primarily “break” for most retailers as they experienced a weak year. Aggressive promotions, reduced footfall, increase in online shopping, and finally the frigid weather – all contributed to a dismal holiday season in 2013. Weather did not play much of a spoilsport earlier in the concluding quarter, but has been nasty ever since.
What further made this holiday season challenging for retailers was the time frame, as 2013 presented only 25 days between Black Friday and Christmas as against 31 days in 2012. A slew of retailers have reported loss of margins in their preliminary reports and subsequently trimmed their outlook for the quarter sending stock prices spiraling down.-
What Waits for Retail in 2014?
An encouraging overall economic scenario heralds hope for Retail. The economic recovery gathered momentum in the second half of 2013, with real GDP increasing at an average annual rate of over 3.7% in the third and fourth quarters, as against 1.8% in the first and second quarters, prompting the Federal Reserve to continue with its modest tapering efforts.
Moreover, a recovering economy boosted the Consumer Confidence Index to the north for the second consecutive month to 80.7 in January from 77.5 in December. This development is more than welcome, as consumer spending constitutes over two-third of the U.S. economic activity. Only, lesser-than-expected job additions in January make us wary. The unemployment rate still stands at 6.6% in January, higher than the Fed’s threshold limit of 6.5%.
However, we believe that with renewed customer sentiment and improving economy, Retail stands a strong chance of delivering a robust performance in 2014. Therefore, it might be a good idea to bet on the retail stocks that are poised to beat earnings estimates in this quarter. An earnings beat will reiterate investors’ confidence in these stocks, leading to rapid price appreciation.
How to Choose a Stock?
Picking the best stocks from the Retail/Wholesale space for one’s portfolio is not a fairly simple task. However, an easy way to narrow down the list of choices during this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Zacks Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement.
For investors seeking to apply this strategy to their portfolio, we have highlighted 3 Retail/Wholesale stocks that may stand out this earnings season:
Foot Locker, Inc. (FL - Snapshot Report): This is a Zacks Rank #3 stock with an earnings ESP of +8.00%. The current Zacks Consensus Estimate for fourth-quarter fiscal 2013 is pegged at 75 cents. Over the past 30 days, the Zacks Consensus Estimate (on average) has remained unchanged. Foot Locker is a New York City based retailer of apparel, footwear and accessories.
- The company is slated to report results on Mar 7, 2014.
Dick's Sporting Goods Inc. (DKS - Analyst Report): This sports and fitness retailer carries a Zacks Rank #3 with an earnings ESP of +0.91%. The current Zacks Consensus Estimate for fourth-quarter fiscal 2013 is pegged at $1.10. Over the past 30 days, the Zacks Consensus Estimate (on average) has increased 3.8% as the company raised its fourth-quarter earnings guidance following better-than expected comparable store sales. The company is headquartered in Coraopolis, Pennsylvania and operates mainly in the Eastern United States.
- Dick’s Sporting is expected to report results on Mar 10, 2014.
Susser Holdings Corporation (SUSS - Snapshot Report): This company sports a Zacks Rank #2 and an earnings ESP of +2.38%. The current Zacks Consensus Estimate for fourth-quarter 2013 is pegged at 42 cents. Over the past 30 days, the Zacks Consensus Estimate (on average) has increased by a penny. This Corpus Christi, Texas based retailer operates convenience stores along with its subsidiaries.
- The company is slated to report results on Feb 26, 2014.
We believe that the above-mentioned stocks armed with strong fundamentals and growth prospects are good investment options at the moment. As the U.S. stocks are on the lookout for a survival strategy, a sneak peek into the retail space for some potential outperformers backed by a favorable Zacks Rank and a positive Zacks Earnings ESP could be handy for investors.