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Analyst Blog

The economy is dealing with various issues, including the upcoming Presidential election, the Fed’s pending decision over the rate hike, and other major events like the recent surge in the dollar and consensus to curtail oil production. While Wall Street is juggling with these events, the recent rebound in retail sales might give a reason to focus on the sector that will remain in the limelight for the remainder of the year.

U.S. retail sales rebounded sharply in September, up 0.6% – after a 0.2% decline in the month of August – buoyed by sturdy auto sales and rising gasoline prices, clearly indicating that the economy is gathering pace and setting the stage right for an upbeat holiday season. (Read: Retail Sales Up: Is the Economy Ready for a Rate Hike?)

Retail Sector in Focus

The recent rebound in oil prices, a favorable labor market, and a gradual improvement in the manufacturing sector and housing market are signals that the economy is in recovery mode, and undoubtedly the retail sector presents itself as a lucrative investment hub amid such a backdrop. These are playing key roles in raising buyers’ confidence, which improved significantly in September, reaching its pinnacle since the recession. We expect this positive sentiment to translate into higher consumer spending.

With the ability and willingness among consumers to spend more, retailers could hear their cash registers jingle this time. Data compiled by eMarketer suggests a 3.3% jump in holiday sales (November and December) to $884.5 billion. Retail eCommerce holiday season sales are anticipated to increase 17.2%, and would represent approximately 10.7% of total sales this season (or $94.71 billion).

Data compiled by the nation's largest retail trade group, National Retail Federation, projects a 3.6% jump in November and December sales (excluding autos, gas and restaurant sales) to $655.8 billion, which is far better than the 10-year average sales growth of 2.5%. Non-store sales for the season are expected to increase 7–10% to approximately $117 billion.

5 Prominent Picks

With the advent of the holiday season, the retail sector is likely to take the center stage. So, how about betting your bucks on lucrative options? Here we have highlighted five Retail/Wholesale stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of “A” or “B.”

We suggest investing in The Children's Place, Inc. (PLCE - Free Report) , with a long-term earnings growth rate of 10.3% and a VGM Score of “A.” This specialty retailer of children's apparel delivered an average positive earnings surprise of 33.1% over the trailing four quarters, and flaunts a Zacks Rank #1. It is expected to witness earnings growth of 30.4% in fiscal 2016 and 9.9% in fiscal 2017.

Investors can count on Best Buy Co., Inc. (BBY - Free Report) , a retailer of technology products, services, and solutions that posted an average positive earnings surprise of 22% over the trailing four quarters and has a VGM Score of “A.” The company is expected to witness earnings growth of 9.2% in fiscal 2017 and 4.9% in fiscal 2018. The stock has a long-term earnings growth rate of 10%, with a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Burlington Stores, Inc. (BURL - Free Report) , retailer of branded apparel products, is a solid bet, with a Zacks Rank #1 and a VGM Score of “A.” The company delivered an average positive earnings surprise of 16.1% over the trailing four quarters and has a long-term earnings growth rate of 18.4%. It is expected to witness earnings growth of 29.3% in fiscal 2016 and 19.2% in fiscal 2017.

Another stock that investors may consider is ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA - Free Report) ,with a Zacks Rank #2, a long-term earnings growth rate of 19.5% and a VGM Score of “B.” The company delivered an average positive earnings surprise of 7.7% over the trailing four quarters. This specialty retailer of cosmetics, fragrance, haircare, skincare, bath and body products is expected to witness earnings growth of 27.8% in fiscal 2016 and 21.1% in fiscal 2017.

Last but not the least is Darden Restaurants, Inc. (DRI - Free Report) , with a Zacks Rank #2, long-term earnings growth rate of 11.4% and a VGM Score of “A.” The company, which owns and operates full-service restaurants, posted an average positive earnings surprise of 9.3% over the trailing four quarters. It is expected to witness earnings growth of 10.9% in fiscal 2017 and 8.8% in fiscal 2018.

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