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Retail sales increased substantially during the month of January, signaling the extent to which consumer confidence has been bolstered since the Presidential election. This is borne out by the fact that the majority of retail categories experienced gains last month, with only auto dealers and gasoline stations experiencing declines.

Additionally, it seems that while President Trump’s policy promises are encouraging financial markets, an improving labor market has empowered the individual buyer. Investing in stocks from the retail sector would make for a profitable proposition now, since such a trend bodes particularly well for the consumer.

Only Autos, Gasoline Falter

According to the Department of Commerce, retail sales increased by 0.4% during the month of January, exceeding the consensus estimate of a 0.1% increase. Additionally, December’s gain was revised substantially upward, from 0.6% to 1%.

Gains took place across 10 out of 13 categories with sales falling at only auto dealers and gasoline stations. However, this is not completely unexpected, given that sales at auto dealers traditional falter right after the holiday shopping season.

In fact, excluding both autos and gasoline, retail sales increased substantially, by 0.7%. Sales at electronics and appliances stores increased by 1.6%. Meanwhile, clothing and clothing accessories stores experienced a 1% increase in sales. Embattled department stores also registered a strong showing, with sales increasing by 1.2%.

Strong Labor Market Boosting Confidence

While discounting has played its part in driving higher sales, analysts believe that a strong job market is primarily responsible for the sustained upswing for the sector. Job gains and wage growth have been steady for some time now, which is boosting consumer confidence. In fact, the U.S. economy added 227,000 jobs during January, the best monthly job gains since September.

However, average hourly wages increased only 0.1% in January, lower than December’s downwardly revised gain of 0.2%. But even though wage gains were subdued last month, they have continued to occur steadily. Average hourly earnings increased by 2.5% on a year over year basis.

Additionally, wage gains are likely to pick up momentum as minimum wage norms begin to take effect. The new administration’s policies are also likely to provide a further fillip to wage increases. (Read: 5 Stocks to Buy on Big New Jobs Numbers)

Our Choices

An appreciable increase in retail sales bodes well for a sector which has been notching up steady gains. Meanwhile, business sentiment is also picking up for which bodes well for investment.

Analysts expect that retail sales will continue to chalk up steady gains over the months to come. In a situation where household purchases will once again be the engine for growth, adding retail stocks to your portfolios looks like a good option. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

Central Garden & Pet Company (CENT - Free Report) is a leading producer and marketer of premium and value-oriented products focused toward the lawn & garden and pet supplies markets in the U.S.

Central Garden & Pet has a VGM Score of B. The company has expected earnings growth of 10.3% for the current year. Its earnings estimate for the current year has improved by 2.5% over the last 30 days. The stock has returned 15.5% over the last three months, outperforming the Zacks Consumer Products – Discretionary sector, which has lost 2.6% over the same period. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Harman International Industries Inc. is engaged in the development, manufacturing and marketing of audio products, lighting solutions, electronic systems & digitally integrated audio and infotainment systems.

Harman has gained 1.7% over the last three months, underperforming the Zacks Audio Video Production Market sector, which has gained 5.8% over the same period. However, it has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 16.8% for the current year. Its earnings estimate for the current year has improved by 2.3% over the last 30 days.

Francesca's Holdings Corp. (FRAN - Free Report) is a specialty retailer of women's apparel products.

Francesca's Holdings has a Zacks Rank #2 (Buy) and a VGM Score of B. The company has expected earnings growth of 10.7% for the current year. Its earnings estimate for the current year has improved by 0.1% over the last 30 days. The stock has returned 9.2% over the last three months, outperforming the Zacks Shoes and Retail Apparel sector, which has returned 7.5% over the same period.

Masonite International Corp. (DOOR - Free Report) is a designer and manufacturer of interior and exterior doors.

Masonite International has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 16.6% for the current year. The stock has returned 3.6% over the last three months, outperforming the Zacks Furniture sector, which has declined 0.2% over the same period.

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