Back to top

Image: Bigstock

Soft August Retail Sales a Temporary Hitch? 5 Stocks to Buy

Read MoreHide Full Article

U.S. retail sales showed continued rise going into August but the rate of growth fairly moderated, as bargain hunters took a breather after an extravagant July. As Americans refrained from splurging on automobiles and apparel, retail sales showed a slight uptick in six months.

Analysts also cited high gasoline prices as one of the prominent reasons behind soft sales in other categories. Nevertheless, an upwardly revised July sales data suggests that the economy is firm, given solid labor market, tax reform and rising income. Consumer spending — one of the pivotal factors driving the economy — is also likely to retain strength. However, the impact of escalating trade war tensions with China cannot be brushed aside.

Retail Sales Growth Slows

The Commerce Department stated that U.S. retail and food services sales in August inched up 0.1% to $509 billion, following an upwardly revised reading of 0.7% gain in July. Notably, retail sales improved 6.6% from August 2017.

The report suggests that sales at motor vehicles and parts dealers fell 0.8%, while sales at furniture & home furnishing stores declined 0.3%. Meanwhile, sales at clothing & clothing accessories decreased 1.7%, while at department stores the metric slid 1%. Sales at both food & beverage stores and building material dealers remained flat.

We note that receipts at gasoline stations rose 1.7%, while sales at electronics & appliance stores improved 0.4%. Sales at non-store retailers climbed 0.7% and also improved 10.4% from the prior-year period. Sales at sporting goods, hobby, book & music stores jumped 0.2%, while at food services & drinking places the same increased by an equivalent rate, following an upwardly revised data of 1.6% in July.



Is This a Temporary Blip?

Industry experts believe that the slowing of retail sales in August may be a temporary phase, given the underlying strength in the economy as of now. Moreover, the National Retail Federation’s projection of a tick-up in U.S. retail sales of at least 4.5% this year hints at increasing basket size and more traffic with retailers as ultimate gainers.

Certainly, favorable economic indicators along with friendlier fiscal and regulatory policies from the current regime bode well for the sector. Notably, the Zacks Retail & Wholesale Sector has advanced roughly 17% so far in the year and has comfortably outperformed the S&P 500’s growth of approximately 9%. Additionally, the recent cut in corporate tax rate will enable retailers to channelize the surplus money toward best possible alternatives.

Thus, we have shortlisted five stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B.

5 Prominent Picks

We suggest investing in Urban Outfitters, Inc. (URBN - Free Report) with a long-term earnings growth rate of 12% and a VGM Score of A. This lifestyle products and services company engaged in the retail and wholesale of general consumer products has delivered an average positive earnings surprise of 17.7% in the trailing four quarters. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Another stock worth considering is DSW Inc. , which has a long-term earnings growth rate of 9%. This branded footwear and accessories retailer delivered an average positive earnings surprise of 17% in the trailing four quarters. The stock, which flaunts a Zacks Rank #1, has a VGM Score of A.

Investors can also count on Darden Restaurants, Inc. (DRI - Free Report) , which owns and operates full-service restaurants. This Zacks Rank #2 company has a long-term earnings growth rate of 9.3% and a VGM Score of B. The company has delivered an average positive earnings surprise of 3.1% in the trailing four quarters.

Target Corporation (TGT - Free Report) , which operates as a general merchandise retailer, is also a solid bet with a Zacks Rank #2 and a VGM Score of A. The company has a long-term earnings growth rate of 6.7%. It has posted an average positive earnings surprise of 1.3% in the trailing four quarters.

You can also add Burlington Stores, Inc. (BURL - Free Report) to your portfolio. This retailer of branded apparel products has a long-term earnings growth rate of 20.2% with a VGM Score of A. This Zacks Rank #2 stock posted an average positive earnings surprise of 11.4% in the trailing four quarters.

Best Electric Car Stock? You'll Never Guess It.

Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!

Much like petroleum 150 years ago, lithium battery power is set to shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge. With battery prices plummeting and charging stations set to multiply, revenues that were already at $31 billion in 2016 are expected to blast to over $67 billion by the end of 2022.

See Zacks Best EV Stock Free >>

Published in