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U.S. retail sales are booming, with July recording the highest increase this year. Sales were aided by strong demand for new autos, while a spike in online shopping tied to Amazon.com, Inc.’s (AMZN - Free Report) Prime Day event boosted Internet retailers. Non-store retailers also witnessed the highest uptick in sales this year, with widespread gains from department stores to building material outlets.

Consumer spending at retail outlets was off to a good start, banking on strong labor market and improved household finances. This calls for investing in fundamentally sound retail stocks on buoyant July sales.

Retail Sales Climb to 7-Month High in July

Sales at U.S. retailers recorded their biggest increase in seven months in July. Retail sales advanced 0.6% last month, the best performance since a gain of 0.9% last December, according to the Commerce Department. Retail sales jumped 4.2% in the past twelve months, which is near the five-year average. Excluding auto and gasoline, retail sales rose 0.5% in July. In fact, excluding automobiles, gasoline, building materials and food services, retail sales went up 0.6% last month.

June’s retails sales were also revised to show a 0.3% gain, in contrast to the previously reported 0.2% decline. May’s retail sales were revised up to show no change instead of the earlier report of a 0.1% dip.

Broad-Based Advance in Retail Sales

Sales were widespread in July, mostly led by strong demand for new autos and Internet shopping. Auto sales climbed 1.2%, the strongest since December. Auto dealers are resorting to hefty discounts to lure customers. They are currently plagued with a huge inventory of unsold cars.

Sales at online retailers, in the meanwhile, jumped 1.3% in July, the largest gain since December 2016. Sales of so-called nonstore retailers were boosted by Amazon’s Prime Day promotion. The online retailer organized its annual Prime Day last month and offered thousands of goods at a discount. This year, the giant Internet shopping company saw its sales during the Prime Day promotion event increase 50% compared to the same event last year.

Sales even rose 1% at departmental stores that have been recently losing ground to online rivals. Receipts at department stores increased the maximum in six months, while purchases went up the most since February at both sporting goods retailers and building-supply outlets. Sales increased 1.2% at building-supply retailers. Americans, in fact, increased spending on almost all commodities except for clothes and gasoline.

What’s Driving Consumer Spending?

This latest report on retails sales showed that consumers have substantial buying power as the third quarter got underway. Consumer outlays grew 2.8% in the second quarter. Spending improved, buoyed by steady hiring, record low jobless rate and a gentle rise in income. Disposable income adjusted for inflation saw the best back-to-back quarters this year since the first half of 2015.

Consumer spending was driven by the strongest labor market in years. The United States added more than 16.6 million jobs since 2010 to push the unemployment rate down to 4.3% in July, the lowest since March 2001. In fact, the U.S. job market roared back to life in July, with a better-than-expected 209,000 job additions. Employment gains have more or less averaged 180,000 per month this year and several economists believe that the economy might need to add only 100,000 jobs on a regular basis to maintain growth levels.

5 Top Retailers to Add to Your Portfolio

U.S. retail sales topped estimates in July amid strong auto demand and increase in consumer discretionary spending. Hence, it will be prudent to invest in retail segments that have gained immensely last month.

Thus, we have selected five stocks from such areas that flaunt a Zacks Rank #1 (Strong Buy) and 2 (Buy).

Rush Enterprises, Inc. (RUSHA - Free Report) is an integrated retailer of commercial vehicles and related services. The company operates through the Truck Segment, which includes its operation of a regional network of commercial vehicle dealerships under the name Rush Truck Centers. Rush Enterprises has a Zacks Rank #1.

The Zacks Consensus Estimate for its current year earnings increased 16.6% over the last 60 days. The company’s estimated earnings growth rate for the current year is 62.2%, higher than the industry’s projected addition of 10.5%. Rush Enterprises has outperformed the industry on a year-to-date basis (+26.7% vs. +20.1%).

Petmed Express Inc (PETS - Free Report) is America’s largest pet pharmacy, delivering prescription and non-prescription pet medications and health and nutritional supplements for dogs and cats at competitive prices direct to the consumer through its 1-800-PetMeds toll free number and on the Internet. Petmed Express has a Zacks Rank #2.

The Zacks Consensus Estimate for its current year earnings went up 13.6% over the last 60 days. The company’s estimated earnings growth rate for the current year is 21.4%, more than the industry’s projected gain of 7.6%. Petmed Express has outperformed the industry on a year-to-date basis (+103.3% vs. +20.1%).

Wal-Mart Stores Inc (WMT - Free Report) is engaged in the operation of retail, wholesale and other units in various formats around the world. The company operates through three segments: Walmart U.S., Walmart International and Sam’s Club. The Sam's Club segment includes the warehouse membership clubs in the United States, and samsclub.com. Wal-Mart Stores has a Zacks Rank #2.

The Zacks Consensus Estimate for its current year earnings increased 0.5% over the last 60 days. The company’s estimated earnings growth rate for the current year is 1.1%, in contrast to the industry’s projected decline of 5.1%. Wal-Mart Stores has outperformed the industry on a year-to-date basis (+16.9% vs. +5.5%). You can see the complete list of today’s Zacks #1 Rank stocks here.

Domino's Pizza, Inc. (DPZ - Free Report) is a pizza restaurant chain company. The company operates through three segments: domestic stores, international franchise and supply chain. Domino’s Pizza has a Zacks Rank #2.

The Zacks Consensus Estimate for its current year earnings advanced 6.1% over the last 60 days. The company’s estimated earnings growth rate for the current year is 33.8%, more than the industry’s projected addition of 2.6%. Domino’s Pizza has outperformed the industry on a year-to-date basis (+18.2% vs. +5.4%).

Lumber Liquidators Holdings Inc (LL - Free Report) is a multi-channel specialty retailer of hardwood flooring, and hardwood flooring enhancements and accessories. Lumber Liquidators has a Zacks Rank #2.

The Zacks Consensus Estimate for its current year earnings soared 30% over the last 60 days. The company’s estimated earnings growth rate for the current year is 67.3%, more than the industry’s expected addition of 11.7%. Lumber Liquidators has outperformed the industry on a year-to-date basis (+124.5% vs. +20%).

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