Back to top

Image: Bigstock

4 Growth Stocks to Tap the Rebounding Retail Sector

Read MoreHide Full Article

In spite of lingering apprehensions associated with the ongoing coronavirus crisis, the Retail – Wholesale sector has been steadily making its way out of the woods. Once struggling to hold its ground, the sector has advanced 36.1% so far this year compared with the S&P 500 index’s rally of 14.2%. Well, thanks to consumers’ increasing appetite for shopping.

Undoubtedly, the COVID-19 pandemic and associated lockdowns did wreak havoc, with restaurants and department stores being significantly hit. But things started to turn in favor following measures undertaken to support households coupled with resumption of economic activities. Meanwhile, per the latest Earnings Outlook, the sector is anticipated to witness top-line growth of 10% in the final quarter of 2020.

Impressively, the sector now carries a Zacks Sector Rank #3, and occupies position in the top 19% of 16 Zacks sector list.

Few Facts to Keep in Mind

Consumer spending activity, one of the pivotal factors driving the economy, remains healthy in spite of the fading of initial coronavirus-relief package. Markedly, U.S. retail sales grew for the sixth straight month in October. Industry experts pointed that consumers have been cutting expenditures on pandemic-sensitive services such as travel and entertainment, and redirecting the same to retail.

However, some market pundits cautioned that resurgence of coronavirus cases are compelling a few states to impose new restrictions, and this could derail consumer spending activity. Notwithstanding the same, industry experts cited that retailers have been resorting to location analytics and other data-driven tools to better engage with customers amid the coronavirus crisis.

Keeping consumers’ product preferences and growing inclination toward online shopping in mind, retailers have been replenishing shelves with in-demand merchandise and ramping up investments in digitization. To beat the COVID-19 blues, companies have been directing resources toward advancing omni-channel capabilities, enhancing supply chain and providing faster delivery options, be it curbside pickup or delivery at home.

While essentials and other household products remain the preference, fashion and leisure items have also been making their way to the shopping list.

4 Prominent Picks

We have shortlisted four stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Investors can count on Tapestry, Inc. (TPR - Free Report) , which provides luxury accessories and branded lifestyle products. The company is progressing well on its Acceleration Program. The program aims at transforming the company into a leaner and more responsive organization, building significant data and analytics capabilities with focus on enhancing digital and omnichannel capabilities, and operating with a clearly defined path and strategy for each brand, namely Coach, Kate Spade and Stuart Weitzman. The stock has a Zacks Rank #1 and a Growth Score of A. The company has a trailing four-quarter earnings surprise of 38.8%, on average. It has a long-term earnings growth rate of 10%. Shares of the company have surged 83.4% in the past three months.

The ODP Corporation (ODP - Free Report) , a provider of business services and supplies, products, and technology solutions, is worth considering. Management commenced a multiyear restructuring plan “Maximize B2B” in May 2020 with the objective to realign the company’s operational focus to support "business-to-business" solutions and IT services business units and improve costs. Through this initiative the company intends to accelerate growth on its B2B platform, lower dependency on its retail consumer operations, and maximize cost savings. Management expects this restructuring plan to be completed by the end of 2023. The stock has a Zacks Rank #1 and a Growth Score of A. The company has a trailing four-quarter earnings surprise of 3.1%, on average, and a long-term earnings growth rate of 6.8%. The company’s shares have increased 27% in the past three months.

You may consider Five Below, Inc. (FIVE - Free Report) . The company’s digital strategy, expansion of supply chain network, enhancement of overall distribution capabilities and focus on merchandise assortment bode well. This specialty value retailer has been effectively meeting customer demand for products relevant in this pandemic-hit environment. Moreover, it has expanded checkout capabilities in a bid to make shopping convenient. Markedly, the company is now offering same-day delivery service in roughly 300 stores. The company has a trailing four-quarter earnings surprise of 46.9%, on average, and an estimated long-term earnings growth rate of 21%. We also note that shares of this Zacks Rank #2 company have advanced 25.8% in the past three months. Markedly, the stock has a Growth Score of B.

Target Corporation (TGT - Free Report) is also worth betting on. This general merchandise retailer has been making investments to enhance omni-channel capacities, come up with new brands, and remodel or refurbish stores to cater to consumer demand and behavior in the new normal. The company’s commitment to offer unique shopping experience with safe and convenient options including contactless Drive Up and Order Pickup, and same-day delivery with Shipt are worth mentioning. The stock has a Zacks Rank #2 and a Growth Score of A. The company has a trailing four-quarter earnings surprise of 52.4%, on average. It has a long-term earnings growth rate of 8.5%. Shares of the company have appreciated 17.9% in the past three months.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.4% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>