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4 Retail Stocks to Add Value to Your Portfolio in 2017

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Today is the last trading day of the year and hopefully you must have taken stock of your portfolio. At the end what really matters is the return. Knowing which sector can provide the best investment opportunities in 2017 could just make your calculations easier. It’s time for some permutations and combinations to arrive at the right picks for 2017.

Among the 16 Zacks categorized sectors, we are focusing on Retail-Wholesale today. Although, the sector has not lived up to expectations and witnessed meager growth of 2.7% so far in 2016, compared with the S&P 500 that advanced 9.5%, it still holds promise, given the favorable economic indicators. Moreover, friendlier fiscal and regulatory policies from the incoming administration also bode well for the sector.

Why the Retail Sector?

The U.S. economy now looks quite firmly placed on the growth trajectory, after a roller coaster ride since the start of 2016. Brexit did not derail the recovery in the economy, which marked the victory of Donald Trump over Hillary Clinton. Further, steady gain in oil prices, improving labor market and the recent rate hike signal that the economy has stabilized. All these augur well for retailers.

The economy added 178,000 jobs in November, up from 142,000 in October, as per the Labor Department. Moreover, the unemployment rate dropped to 4.6% last month from 4.9% in October, marking the lowest level reached in nine years. Further Trump’s revolutionary ideas not only provided the much needed impetus to the market, it also instilled confidence among consumers.

Consumer Confidence – a key determinant of the economy’s health – improved significantly in December, reaching its highest level since Aug 2001. We expect this positive sentiment to propel consumer spending, which accounts for over two-thirds of the U.S. economic activity. Consumer spending increased 3% during the third quarter of 2016.

Undoubtedly, the Retail-Wholesale sector presents itself as a lucrative investment hub amid the current economic scenario. Further, according to the latest Earnings Trends report as of Dec 29, 2016, the sector is expected to record top and bottom-line growth of 5% and 10.9%, respectively. However, we understand that the sector is not fully immune to global uncertainties, which could limit growth.

But for now, things are looking great and it is time to rejuvenate your portfolio as we head into the New Year.

What Should be Your Strategy for the New Year?

Warren Buffett once said “It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” The strategy is quite simple – find stocks that are trading below their inherent worth.

Investment in stocks made on diligent value analysis is usually considered one of the best practices. In value investing, investors pick stocks that are cheap but are fundamentally sound. So chances are that these stocks will allow investors to book profits when the market trends upward.

Nevertheless, identifying a value stock is a Herculean task. In fact, when the market is weak, value investment is the way to go as most of the fundamentally sound stocks fall within the discounted range. But it is not so easy to figure out how it works when the stocks are already gaining strength on the back of bullish trends.

To make the task easy, Zacks has designed the new Style Score System. The attractiveness of a stock as an investment option is confirmed by its Value Style Score of “A” or “B”. Our research shows that stocks with Style Scores of “A” or “B” when combined with a Zacks Rank #1 (Strong Buy) offer the best upside potential.

4 Prominent Value Picks

We suggest investing in The Children's Place, Inc. (PLCE - Free Report) , a specialty retailer of children's apparel, with a Value Score of “B” and long-term earnings growth rate of 10.3%. The stock has enjoyed positive estimate revisions over the past 60 days and has estimated earnings per share growth rate of 40.6% and 13.5% for fiscal 2016 and 2017, respectively. In the past six months, the stock has surged roughly 27% and outperformed the Zacks categorized Retail-Apparel/Shoe industry, which gained 4.9%. Moreover, it sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy Co., Inc. (BBY - Free Report) with a Zacks Rank #1 and a long-term earnings growth rate of 11.9% is another solid bet. This retailer of technology products, services, and solutions has a Value Score of “A”. The Zacks Consensus Estimate too has trended upward over the past 60 days. The stock has estimated earnings per share growth rate of 17.7% for fiscal 2017 and 6% for fiscal 2018. In the past six months, the stock has increased roughly 37.3% and surpassed the Zacks categorized Retail-Consumer Electronic industry, which gained 30.2%.

You can also count on Big 5 Sporting Goods Corporation (BGFV - Free Report) , a sporting goods retailer, with a Zacks Rank #1 and a Value Score of “A”. The stock has witnessed positive estimate revisions over the past 60 days and has a long-term earnings growth rate of 12%. It has estimated earnings per share growth rate of 3.9% for 2016 and 18.3% for 2017. In the past six months, the stock has exhibited a bullish run and surged 88.8%, while the Zacks categorized Retail-Miscellaneous/Diversified industry declined 1.6%.

You may also consider Tilly's, Inc. (TLYS - Free Report) , a retailer of casual apparel, footwear, and accessories. The stock sports a Zacks Rank #1 and has a Value Score of “B” with a long-term earnings growth rate of 13%. The company has also witnessed upward earnings estimate revisions over the past 30 days. Moreover, the stock has estimated earnings per share growth rate of 21.2% and 16.5% for fiscal 2016 and 2017, respectively. In the past six months, the stock has displayed a fabulous bull run on the index and has risen over 100%, while the Zacks categorized Retail-Apparel/Shoe industry increased just 4.9%.

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