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4 Retail Bets That Raise Hopes for the Remainder of 2022

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There is not much clue, as of now, to how the stock market is going to behave in the second half of 2022. Truly speaking, things haven’t changed much or improved for the best in the past six months. Risk appetite has almost dried up, as investors are walking a tight rope. The Russia-Ukraine conflict, supply chain bottlenecks and soaring inflation are all to blame. Rising crude price is also worsening matters.

Halfway down the year, let’s not be too pessimistic. The market has already factored in almost all the bad news, and any improvement from here in the economic scenario could lift investor sentiment. Any positive development on inflation, supply chain, the ongoing conflict and corporate earnings could trigger a rally in the market.  

Meanwhile, addressing shooting commodity prices is a top priority for the Federal Reserve, and it is treading the path of a rate hike to tame the same. In a bold move to counter inflation, the Fed recently announced a 75-basis point hike in the benchmark interest rate that takes the level to a range of 1.5% to 1.75%. This was the biggest rate increase since 1994.

While challenges persist, retailers are still pinning hopes on the back-to-school season. Per Mastercard SpendingPulse, U.S. retail sales, excluding automotive, are projected to increase 7.5% year over year during the period that runs from Jul 14 to Sep 5. With e-commerce still one of the preferred modes for shopping, Mastercard SpendingPulse foresees online sales to rise by 4.3%. Notably, in-store shopping is anticipated to increase 8.2%.

That said, here we have highlighted four stocks from the Retail-Wholesale sector that have a Zacks Rank #1 (Strong Buy) — The Kroger Co. (KR - Free Report) , Dollar Tree, Inc. (DLTR - Free Report) , Boot Barn Holdings, Inc. (BOOT - Free Report) and Ulta Beauty, Inc. (ULTA - Free Report) . You can see the complete list of today's Zacks #1 Rank stocks here.

Past Year Price Performance

 

Zacks Investment Research
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4 Prominent Picks

Kroger, which operates in the thin-margin grocery industry, is a potential pick. The company has been undertaking efforts to strengthen its position not only with respect to products but also in terms of the way consumers shop. It has been making investments to enhance product freshness and quality as well as expand digital capabilities. Kroger has been augmenting Our Brands portfolio by launching new products.

Kroger has a trailing four-quarter earnings surprise of 20.3%, on average. The company has an estimated long-term earnings growth rate of 11.3%. The Zacks Consensus Estimate for Kroger's current financial year sales and EPS suggests growth of 6.7% and 6.3%, respectively, from the year-ago period.

Another stock worth considering is Dollar Tree. This Chesapeake, VA-based company's strategic initiatives, including the expansion of $3 and $5 Plus assortment in Dollar Tree stores, as well as Combo Stores and H2 Renovations at Family Dollar, provide tremendous opportunities to drive sales and traffic.

Impressively, Dollar Tree has a trailing four-quarter earnings surprise of 13.1%, on average. This operator of discount variety stores has an estimated long-term earnings growth rate of 15.5%. The Zacks Consensus Estimate for Dollar Tree's current financial year sales and EPS suggests growth of 6.7% and 40.5%, respectively, from the year-ago period.

You may invest in Boot Barn Holdings. This lifestyle retailer of western and work-related footwear, apparel and accessories has been successfully navigating through the challenging environment, courtesy of merchandising strategies, omni-channel capabilities and better expense management as well as marketing. This, combined with the expansion of the store base, has helped Boot Barn Holdings gain market share and strengthen its position in the industry.

The company has an estimated long-term earnings growth rate of 20%. The Zacks Consensus Estimate for Boot Barn Holdings' current financial year sales and EPS suggests growth of 17% and 4.4%, respectively, from the year-ago period.

Investors can count on Ulta Beauty. The company has been strengthening its omni-channel business and exploring the potential of both physical and digital facets. It has been implementing various tools to enhance guests' experience, like offering a virtual try-on tool and in-store education, and reimagining fixtures, among others. Ulta Beauty focuses on offering customers a curated and exclusive range of beauty products through innovation.

Impressively, this beauty retailer and the premier beauty destination for cosmetics, fragrance, skincare products, hair care products and salon services has a trailing four-quarter earnings surprise of 49.8%, on average. We note that the company has an estimated long-term earnings growth rate of 10.7%. The Zacks Consensus Estimate for Ulta Beauty's current financial year sales suggests growth of 10.3% from the year-ago period.