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GDP Falters: 3 Retail Stocks to Power Your Portfolio

Who doesn’t like a positive return from ones portfolio, particularly when the economy does not show favorable signs or the market mood is indecisive? Investors exercise extra caution while choosing their portfolio but surety of return is not guaranteed every time.

Here, we will discuss 3 retail stocks that can enrich your portfolio in an economy which is still undergoing recovery. The third and final data for real gross domestic product (GDP) revealed a 2.9% decline in the first quarter of 2014, thus taking away some sheen from the economy, which had barely started to look stronger.

Market watchers believe that the contraction stemmed from an inclement weather condition that locked consumers indoors, hampered production and construction activities, and led to soft home and auto sales. Consumer spending, which accounts for over two-third of the U.S. economic activity, also grew a moderate 1% in the quarter, down from the 3.1% jump anticipated.

However, economists believe that the softness in the first quarter was only temporary. They are hopeful that a much favorable weather condition now, an improving labor market, recovery in the housing market and surging demand, will translate into strength in the U.S. economy as the year progresses.

Scaling down of the bond buying campaign for the fifth time to $35 billion, rising consumer confidence (85.2 in June 2014 from 82.2 in May 2014) and unemployment rate standing at its 5-year low of 6.3%, hint at a rebounding economic activities. Thus we turn our attention to the Retail/Wholesale sector which remains a lucrative investment opportunity.

3 Prominent Picks

We suggest investing in Tiffany & Co. (TIF - Analyst Report), the renowned jewelry maker. This Zacks Rank #1 (Strong Buy) stock has amassed a year-to-date return of roughly 9.4%, and is expected to witness earnings growth of 14.7% in fiscal 2014 and 13.4% in fiscal 2015.

Though the stock looks a bit pricey with a forward P/E (price-to-earnings) multiple of 23.49x, it should not disappoint investors given the company's long-term expected earnings growth of 13.6%. This New York-based company had registered an average positive earnings surprise of 15.2% over the trailing four quarters.

Restoration Hardware Holdings, Inc. (RH - Snapshot Report), a home furnishings retailer, is another stock to bet on. This Zacks Rank #1 (Strong Buy) stock has amassed a year-to-date return of 37.2% and has a long-term earnings growth rate of 28.6%. Shares of this Corte Madera, CA based company trades at a forward P/E of 38.81x, which is expensive but attractive from an earnings growth perspective. The company had registered an average positive earnings surprise of 37.0% over the trailing four quarters.

Another stock that investors may look forward to is Hanesbrands Inc. (HBI - Analyst Report), a designer and manufacturer of basic apparel in the United States. Shares of this Zacks Rank #2 (Buy) company trades at a forward P/E of 19.72x, a marginal discount to the industry average of 20.00x, and have amassed a year-to-date return of 42.4%.

This Winston-Salem, NC-based company had registered an average positive earnings surprise of 17.9% over the trailing four quarters, and has a long-term earnings growth rate of 12.8% that makes it look attractive. The company is expected to witness earnings growth of 27.4% in 2014 and 10.0% in 2015.

Bottom Line

We believe that the above stocks which boast strong fundamentals and growth prospects are capable of satisfying investors' search for market winners. A solid rank indicates favorable estimate revisions by analysts who are optimistic on the future of these companies.

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