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4 Stocks to Ride the Surge in Retail Sales

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Per the latest data from the U.S. Commerce Department, retail sales for the month of May surged to its highest settlement in the last six months. Americans spent more on buying cars and other luxury goods even as unemployment remained at an18-year low.

Such growth indicates that the country’s GDP is set to gain momentum in the second quarter. Moreover, low unemployment and wage growth has also boosted consumer spending. Under such broadly encouraging conditions, investing in consumer discretionary stocks would be prudent.

Retail Sales Hit a Six-Month High

Retail sales surged to its highest levels since November 2017, increasing 0.8% in the month. This also represented a 5.9% increase from the last year and follows the revised 0.4% growth in April. Further, if automobiles, gasoline, building materials and food services are excluded, the metric registered 0.5% growth in May.

Sales of automobiles jumped 0.5% in the month, following a 0.2% increase in April. Also, sales at service station were up 2% in May, indicating higher-than-normal gasoline prices. This apart, the average American spent more on clothes as well as in restaurants and bars, both rising 1.3% in the last month. While the jump in apparel sales marked its biggest advance since March 2017, receipts at restaurants and bars registered the biggest gain since January 2017.

Robust retail sales have renewed hopes of strong economic growth in the second quarter. A surge in retail sales reflects increased consumer spending, which contributes heavily to GDP. Experts estimate that the economy would accelerate at an annualized pace of 4.6% in the April-June period.

Low Unemployment, High Hourly Wages

Per the U.S. Bureau of Labor Statistics, the U.S. economy witnessed a mindboggling 223,000 new job additions in May. The consensus estimate for the period was 190,000 new job additions. This also marked the highest number of job additions in the last three months. Notably, the unemployment rate remained unchanged at 3.8% in May, its lowest since April 2000. Moreover, the total number of unemployed is down by 772,000 or 0.5%, over the year.

Further, average hourly earnings jumped 0.3% to $26.92 in May, higher than the consensus estimate of an increase of 0.2%. From May last year alone, average hourly earnings have advanced 2.7%. Along with higher wages, the average workweek for all employees came in at 34.5 hours last month.

Further, weekly jobless claims for the week ending June 9, fell to a near 45-year low to 218,000 claims. A robust labor market results in higher wages. Such a turn of events is likely to boost consumer spending. This sequence of events is quite likely in the current scenario because consumers spent more despite unusually high gasoline prices.

4 Hot Choices

Americans spent more on luxury items last month which boosted overall retail sales in May. Such developments clearly indicate that the U.S. economy is on track for stupendous growth in the second quarter. Further, higher than usual wages and low unemployment propelled retail sales last month.

In this context, we have selected four consumer discretionary stocks that are expected to gain from these factors. These four stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel Group, Ltd. (GIII - Free Report) is the designer and manufacturer of both men’s and women’s apparel in the United States as well as across the globe.

The company is based out of New York, NY and has a Zacks Rank #1. The expected earnings growth rate for the current year is 14.38%. The Zacks Consensus Estimate for the current year has improved 15.2% over the last 60 days.

Delta Apparel, Inc. (DLA - Free Report) is a designer and manufacturer of a variety of lifestyle products and branded apparel, headwear and related accessories.

The company is based out of Greenville, SC and has a Zacks Rank #1. The expected earnings growth rate for the current year is 12.78%. The Zacks Consensus Estimate for the current year has improved 11.1% over the last 60 days.

Callaway Golf Company  is a manufacturer and seller of golf clubs, golf balls, golf bags, and other golf-related accessories.

The company is based out of Carlsbad, CA and has a Zacks Rank #2. The expected earnings growth rate for the current year is 53.21%. The Zacks Consensus Estimate for the current year has improved 15.7% over the last 60 days.

Columbia Sportswear Company (COLM - Free Report) is a designer and distributor of outdoor and active lifestyle apparel, footwear and related accessories.

The company is based out of Portland, OR and has a Zacks Rank #2. The expected earnings growth rate for the current year is 12.46%. The Zacks Consensus Estimate for the current year has improved 3.1% over the last 60 days.

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