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Best Buy and 4 Other Retail Stocks for the Holiday Season

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The “Trump Factor” may have been ruling the U.S. stock market but it is the attractive holiday season deals that are ruling the hearts of customers. A blockbuster Thanksgiving weekend and buoyant Cyber Monday indicate that the season is turning out to be a bonanza for retailers, who are cashing in on customers preferring to shop from the comfort of their homes, mostly online or through their mobile phones.

Thanksgiving and Black Friday online sales touched a new record this year, surging 17.7% to $5.27 billion, per Adobe. Bargain hunters bought $3.34 billion worth of products online on Black Friday, an increase of 21.6% from last year, thus setting a new record. The euphoria did not end here, as the shopping frenzy was palpable on Cyber Monday when online sales jumped 12.1% to $3.45 billion.

On the flip side, increased online shopping resulted in lower footfall at stores. According to RetailNext, sales at brick-and-mortar stores on Thanksgiving Day and Black Friday declined 5%, while the number of transactions dropped 7.9%.

Traditionally, retail stocks get a push during the holiday season, which is a make-or-break time for retailers. Since the season accounts for a sizeable chunk of yearly revenues and profits, retailers grab every opportunity to drive footfall.

Like other retailers Best Buy Co., Inc.’s (BBY - Free Report) is leaving no stone unturned and doling out great offers. After enticing bargain-hunters with exciting Thanksgiving and Black Friday deals, it came out with its first ever Special Edition Tech collection, a set of 11 limited-quantity tech gadgets. Customers can grab these products at select Best Buy outlets as well as BestBuy.com. Per sources, the company is also offering free shipping on online purchases, subject to certain conditions.

Retail Sector Holds Promise

Post Brexit, the U.S. economy looks quite steady and this holds good for the holiday season. The second estimate for GDP shows that the U.S. economy grew 3.2% in the third quarter, faring better than the first estimate of 2.9% growth and the second-quarter anemic increase of 1.4%. Given the rebounding economy, still lower gasoline prices and improving labor market, the retail space is brimming with optimism.

These factors have boosted buyers’ confidence, which improved significantly in November, reaching its highest level in nine years. We expect this positive sentiment to propel consumer spending. Consumer spending increased 2.8% during the third quarter. The Commerce Department recently unveiled that consumer spending advanced 0.3% in October. (Read: 4 Retail Stocks to Buy on 9-Year High Consumer Confidence)

Given the ability and willingness among consumers to spend more, retailers could hear their cash registers jingle this time. Data compiled by eMarketer suggests a 3.3% jump in holiday sales (November and December) to $884.5 billion. Retail e-commerce holiday season sales are anticipated to increase 17.2%, and represent approximately 10.7% of total sales this season (or $94.71 billion).   

Data compiled by the nation's largest retail trade group, National Retail Federation, project a 3.6% rise in November and December sales (excluding autos, gas and restaurant sales) to $655.8 billion, which is far better than the 10-year average sales growth of 2.5%. Non-store sales for the season are expected to increase 7–10% to approximately $117 billion.

Why Best Buy?

With the advent of the holiday season, the retail sector takes the center stage. So, how about betting your bucks on lucrative options? Best Buy, a retailer of technology products, services, and solutions, is one such stock, which investors can count on. The stock has been on a bull ride in the index and has surged approximately 54% so far in the year, comfortably outperforming the Zacks categorized Retail-Wholesale sector that showed marginal growth of 3.6%.

Best Buy posted an average positive earnings surprise of 25.7% in the trailing four quarters and has a long-term earnings growth rate of 11.9%. The stock has a VGM Score of “A” and flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

4 Other Prominent Picks

Here we have highlighted four other Retail/Wholesale stocks with a Zacks Rank #1 and a VGM Score of “A” or “B.” These stocks have also outperformed the broader sector.

Burlington Stores, Inc. (BURL - Free Report) , a retailer of branded apparel products, is a solid bet, with a Zacks Rank #1 and a VGM Score of “A.” The company posted an average positive earnings surprise of 25.6% in the trailing four quarters and has a long-term earnings growth rate of 19.9%. The stock has soared over 100% year-to-date.

We suggest investing in Big 5 Sporting Goods Corporation (BGFV - Free Report) , with a long-term earnings growth rate of 12% and a VGM Score of “A.” This sporting goods retailer delivered an average positive earnings surprise of 4.8% in the trailing four quarters and carries a Zacks Rank #1. So far in the year, the stock has advanced approximately 87%.

You may also consider Tilly's, Inc. (TLYS - Free Report) , a retailer of casual apparel, footwear, and accessories. The stock, which has increased over 100% year-to-date, sports a Zacks Rank #1 and has a VGM Score of “A.” The company posted an average positive earnings surprise of 98% in the trailing four quarters and has a long-term earnings growth rate of 15.5%.

Last but not the least is The Children's Place, Inc. (PLCE - Free Report) , with a Zacks Rank #1, a long-term earnings growth rate of 10.3% and a VGM Score of “A.” The company, which operates as a children's specialty apparel retailer, posted an average positive earnings surprise of 36.3% in the trailing four quarters. The stock has surged about 92% so far in the year.

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