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Ring in 2018 With These 4 Retail Stocks for Great Returns

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Barring a few hiccups, the year 2017 has turned out to be a great one for investors. The “Trump Factor” has provided the much needed boost to the stock market that has scaled new highs. Major indices like the S&P 500, Dow Jones Industrial Average and NASDAQ have gained 19.2%, 24.9% and 27.6%, respectively, in a year. Additionally, consistent encouraging economic data along with the recent hike in benchmark interest rate highlights the underlying strength.

Most of this euphoria stemmed from the new administration’s pledge to relax regulatory measures, cut taxes and increase infrastructure outlays. If the government well channelized the policies and implements pro-investors and pro-corporate reforms, major indices could continue to rally. With plenty of positive news — Trump’s ambitious tax plan, GDP growth rate of 3% or more for two successive quarters, and robust corporate earnings all seem to be working in tandem for investors.

We believe that the U.S. economy has enough steam to sustain the momentum in 2018, and with things looking great it is time you rejuvenate your portfolio. Among the 16 Zacks categorized sectors, we are focusing on Retail-Wholesale, which currently occupies the top 38% (6 out of 16) position in the list. The sector has gained 29.4% in a year and has comfortably outperformed the S&P 500.

Retail Space Rides on Favorable Indicators

Retail sector is hogging all the attention, and this time for good reasons. For the time being, the expression "retail apocalypse” appears to be a thing of past. The sector has certainly been facing the brunt of heightened online competition, lower footfall and changing consumer spending patterns but of late the tables are turning in favor of the retailers. Stocks once bogged down by tough environment are now suddenly climbing the charts.

The rebound in oil prices from all-time lows, fall in the unemployment rate to 17-year low, and improving housing and manufacturing sectors signal that the economy is on a recovery mode. These factors are favorable for retailers. Steady job additions and gradual wage acceleration boost consumer confidence. Although consumer confidence dipped to 122.1 in December from November’s revised reading of 128.6, analysts believe that consumers remain optimistic about the economy.

Adding to the streak of encouraging economic indicators is the recent holiday season sales data. Per MasterCard SpendingPulse report, retail sales during the period jumped 4.9%, marking the biggest year-over-year uptick in holiday spending since 2011. The data also fared better than the National Retail Federation projection of 3.6-4% rise in November and December sales and eMarketer forecasts of 3.1% jump in holiday sales.

Having said that we believe the sector offers lucrative opportunities for investors. Here we have highlighted four Retail/Wholesale stocks with a favorable combination of a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a VGM Score of A or B. These stocks are backed by sound fundamentals, surging share price and a track record of better-than-expected results. Not only this, these stocks have outperformed their respective industries.

4 Prominent Picks

RH (RH - Free Report) , a home furnishing retailer, is a lucrative option. The stock has a long-term earnings growth rate of 34.4% and a VGM Score of A. We note that in a year, the stock has soared nearly 200%, while the industry has rallied 13.1%. The company has a Zacks Rank #1 and delivered an average positive earnings surprise of 17% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

We also suggest investing in Wal-Mart Stores, Inc. (WMT - Free Report) with a long-term earnings growth rate of 6.1% and a VGM Score of B. In a year, the stock has surged roughly 43.3% and outperformed the industry, which grew 34%. This operator of discount stores, supermarkets, hypermarkets and warehouse clubs delivered an average positive earnings surprise of 2.2% in the preceding four quarters. The stock carries a Zacks Rank #2.

Investors can count on The Children's Place, Inc. (PLCE - Free Report) with a VGM Score of B and a long-term earnings growth rate of 9%. In a year, this Zacks Rank #2 stock has advanced roughly 43.1%, compared with the industry’s gain of 0.9%. This children's specialty apparel retailer delivered an average positive earnings surprise of 14% in the preceding four quarters.

Burlington Stores, Inc. (BURL - Free Report) , a retailer of branded apparel products, is also a lucrative option with a Zacks Rank #2 and a VGM Score of B. The company posted an average positive earnings surprise of 15.2% in the trailing four quarters and has a long-term earnings growth rate of 17.5%. The stock has surged 42.9% in a year and comfortably outperformed the industry’s increase of 11.7%.

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