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These 4 Retail Stocks Make a Great Buy Ahead of Holiday Season

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With 2020 inching toward an end, all eyes are on the most crucial part of the year for retailers — the holiday season. But this time around, retailers are bracing for an unusual festive season, thanks to the coronavirus pandemic. There are fears about how comfortable consumers will be in terms of purchasing at a time fraught with high unemployment and lower disposable income. Well, if consumers choose to tighten purse strings, retailers have to tough it out this shopping season.

Nonetheless, Daniel Bachman, Deloitte’s U.S. economic forecaster, said, “While high unemployment and economic anxiety will weigh on overall retail sales this holiday season, reduced spending on pandemic-sensitive services such as restaurants and travel may help bolster retail holiday sales somewhat.” According to a report from CNBC, Deloitte envisions holiday sales between $1.147 trillion and $1.152 trillion, which suggests an increase of 1-1.5% during the November-January period.

Let’s see how the season is unfolding.

Holiday Hiring Begins

No wonder, with festive season looking quite unpredictable, retailers need to walk the extra mile to capture customers’ attention. They need to channelize their strength and make strategic investments to provide consumers fast, convenient and safe shopping experience, be it offline or online. Well keeping all these aspects in mind and to catch up with the any unprecedented increase in demand, retailers are unveiling hiring plans for the holiday season.

The retail biggie Walmart (WMT - Free Report) unveiled plans to deploy more than 20,000 seasonal associates at its countrywide e-commerce fulfillment centers to meet the expected surge in online shopping. Earlier this month, e-commerce behemoth Amazon (AMZN - Free Report) has announced plans to recruit as many as 100,000 full and part-time employees to meet the surge in online demand more efficiently. Moving on, 1-800-FLOWERS.COM (FLWS - Free Report) revealed plans to appoint more than 10,000 seasonal workers for its gourmet foods and gift brands for the festive season.

Andrew Challenger, vice president of Challenger, Gray & Christmas, Inc. said, “Despite current high unemployment and ongoing uncertainty, Retailers, particularly those with a strong online shopping infrastructure, are anticipating high demand.”

Early Start to the Season

To beat the COVID-19 blues, retailers are looking for an early start to the festive season with an extended promotional period to avoid rush at stores, given the health concerns. Per AlixPartners, the global consulting firm, nearly half of US consumers are likely to kick-start their shopping for the festive season before Halloween. The consulting firm now expects holiday season to span between the period October and December.

The consulting firm envisions an increase of 1-2.6% in retail sales on a year-over-year basis during the newly defined “October-through-December” holiday season. In the last year, sales amounted to $1.132 trillion during the aforementioned period. According to the poll done by AlixPartners, apparel, toys, footwear, and electronics & video games emerged as the top retail categories where consumers intend to spend the same or more this festive season.

Digitization Now a New Normal

Keeping in mind consumers’ product preferences and growing inclination toward online shopping, thanks to social distancing and greater stay at-home trends, retailers need to replenish shelves with in-demand merchandise and ramp up investments in digitization this holiday season. The AlixPartners consumer survey also highlights that 45% of customers plan to make majority of their holiday purchases online. This reflects an increase of about 15 percentage points from last year’s survey.

Per Deloitte, e-commerce sales are estimated to improve 25-35% to reach $182-$196 billion this festive period.

It is quite apparent that retailers need to play dual in-store and online roles. In this respect, the industry players have been directing resources toward digital platforms, accelerating fleet optimization and augmenting supply chain. In fact, companies’ initiatives to expand delivery options — curbside pickup or ship-to-home orders — and contactless payment solutions have been a boon amid the pandemic. Additionally, retailers are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant.

4 Prominent Picks

All said, here 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sprouts Farmers Market, Inc. (SFM - Free Report) is worth betting on. The stock has a Zacks Rank #1 and a VGM Score of B. The provider of fresh, natural, and organic food products has a trailing four-quarter earnings surprise of 49.9%, on average. It has a long-term earnings growth rate of 9.2%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates an improvement of 15.8% and 69.6%, respectively, from the year-ago period.

You may invest in Best Buy Co., Inc. (BBY - Free Report) , which has a Zacks Rank #2 and a VGM Score of A. The provider of technology products, services and solutions has a trailing four-quarter earnings surprise of 33.5%, on average. It has a long-term earnings growth rate of 8.5%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates growth of 3.8% and 17.3%, respectively, from the prior-year period.

We also suggest investing in At Home Group Inc. (HOME - Free Report) , which has a long-term earnings growth rate of 42.5%. This operator of home decor superstores has a trailing four-quarter earnings surprise of 12.4%, on average. The stock has a Zacks Rank #2 and a VGM Score of A. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests an improvement of 13.2% and 196.5%, respectively, from the year-ago period.

Domino's Pizza, Inc. (DPZ - Free Report) with a long-term earnings growth rate of 13.9% is also a solid bet. This pizza company has a trailing four-quarter earnings surprise of 18.6%, on average. The stock has a Zacks Rank #2 and a VGM Score of B. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates growth of 12.3% and 34.1%, respectively, from the year-ago period.

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