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4 Solid Stocks to Buy on Steady Recovery in Retail Sales

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The retail sector continues to grow despite an increasing number of challenges. Rising prices are one of the most worrying factors now but people are still willing to spend, leading to a surge in retail sales over the past few months.

Although online sales have slowed down lately, in-store retail sales have gained traction as people are now more confident about visiting stores after being fully vaccinated. However, e-commerce will continue to grow, given that people have realized its benefits during the peak of the pandemic. Given this situation, stocks likeTarget Corporation (TGT - Free Report) , Costco Wholesale Corporation (COST - Free Report) ,The Buckle ((BKE - Free Report) ) and Williams-Sonoma, Inc. (WSM - Free Report) are likely to benefit in the near term.

Retail Sales Soar Again

After an impressive first quarter, retail sales once again grew in April. According to the latest Mastercard SpendingPulse report, total retail sales excluding autos jumped 7.2% in April on a year-over-year basis and 15.3% from the pre-pandemic spending in 2019.

In-store sales rose 10% year over year in April, while online retail sales declined 1.8%. However, the decline in online sales was mainly due to more traffic in physical stores. As the economy continues to reopen and more people get vaccinated, in-store traffic continues to get a boost.

Till last year, people were more dependent on e-commerce as they felt safer shopping online. In fact, e-commerce was largely responsible for saving the retail sector from complete collapse during the peak of the pandemic and several months after that.

This saw online retail sales hitting a record high last year. However, things have slightly changed this year as people have started visiting physical stores. Even then, e-commerce dominates a significant portion of the overall retail sales. Online sales are still up 92% from April 2019.

Overall Growth in Retail Sector

The report said that retail sales grew across all sections. Apparel sales grew 10.8% year over year in April 2022 and 8.4% from April 2019. Sales at department stores jumped 15.7% year over year last month and 23.3% from the pre-pandemic era in April 2019.

Also, furniture sales jumped 3.8% year over year in April.

April’s jump comes despite rising commodity prices. Inflation, which has hit a 40-year high, has been worrying both retailers and consumers but people are still willing to spend, which is helping the sector.

The Fed has already hiked interest rates twice this year — once by 25 basis points and the second time by 50 basis points — to put a check on inflation. And more rate hikes are in the cards. However, rising income thanks to higher wages has been helping people spend freely till now.

According to a forecast from the National Retail Federation, retail sales in the United States are likely to increase by 6% to 8% in 2022, higher than the pre-pandemic growth rate of 3.7%. This year's overall retail sales are expected between $4.86 trillion and $4.95 trillion, excluding automotive, restaurant and gasoline sales.

E-commerce, which has been a key driver in pushing retail sales, will continue to play an important role in the near term, according to the report. Non-store and online retail sales will climb between 11% and 13% to $1.17 trillion and $1.19 trillion, according to the research.

Hiring in the United States is also at a record high, while jobless claims are steadily declining. This means that more individuals are returning to work, which should increase their earnings, thus giving them more power to purchase.

Our Choice

Given this scenario, investing in retail stocks seems wise. We have chosen four stocks for you. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Target Corporation has evolved from just being a pure brick-and-mortar retailer to an omni-channel entity. TGT has been investing in technologies, improving websites and mobile apps and modernizing the supply chain to keep pace with the changing retail landscape and better compete with pure e-commerce players. Target Corporation provides an array of goods ranging from household essentials and electronics to toys and apparel for men, women and kids.

Target Corporation’s expected earnings growth rate for the current year is 7.3%. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 60 days. TGT has a Zacks Rank #2.

Costco Wholesale Corporation sells high volumes of food and general merchandise (including household products and appliances) at discounted prices through membership warehouses. Costco is one of the largest warehouse club operators in the United States. COST also operates e-commerce websites in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.

Costco Wholesale Corporation’s expected earnings growth rate for the current year is 18%. The Zacks Consensus Estimate for current-year earnings improved 0.8% over the past 60 days. COST has a Zacks Rank #2.

The Buckle is a leading retailer of medium to better-priced casual apparel, footwear, and accessories for fashion-conscious young men and women. BKE markets a wide selection of brand names and private label casual apparel, including denims, other casual bottoms, tops, sportswear, outerwear, accessories and footwear. Buckle emphasizes personalized attention to its customers and provides individual customer services such as free alterations, layaways, and a frequent shopper program.

Buckle’s expected earnings growth rate for the current year is 1.7%. The Zacks Consensus Estimate for current-year earnings has improved 10.3% over the past 60 days. BKE sports a Zacks Rank #1.

Williams-Sonoma, Inc. is a multi-channel specialty retailer of premium quality home products. WSM has five brands and each of the brands are operating segments. Williams-Sonoma also offers cookware, tools, cutlery, electrics, tabletop and bar, outdoor, furniture and cookbooks.

Williams-Sonoma’sexpected earnings growth rate for the current year is 6.1%. The Zacks Consensus Estimate for current-year earnings has improved 10.1% over the past 60 days. WSM has a Zacks Rank #2.