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The retail landscape has been undergoing a fundamental change, with technology playing a key role and the focus shifting to online shopping. This transition in buying pattern has persuaded retailers to come up with innovative ways to market their products. Retailers who have responded quickly to it by staying ahead technologically stand in good stead.

With a digital transformation in shopping and consumers splurging online, store and mall traffic has been hit hard. As a result, most retailers including big-box ones are struggling to compete with e-Commerce channels. These companies are being forced to trim store count to focus more on an online model.

Nevertheless, retailers are now efficiently allocating a large chunk of capital toward multi-channel growth strategy focused on improving merchandise offerings, and developing IT infrastructure to enhance the web and mobile experience of customers. Further, the retailers are renovating stores, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system along with improving relationship with existing and new customers.

How Is the Sector Placed?

Although the Zacks Retail Sector — which occupies the bottom most position among the Zacks Sector Rank (16 out of 16) — has not been an outstanding performer. However, it still holds some promise, given the favorable economic indicators. We note that so far this year, the sector has registered an increase of 15.8% compared with the S&P 500 that was up roughly 9.9%.

A decent run in the U.S. stock market, sturdy retail sales data along with steady job addition and improvement in the manufacturing sector have lifted investors’ mood as well as highlights the solid economic report card. These were reflected in Consumer Confidence — a key determinant of the economy’s health — that reached its second highest level in August since late 2000. U.S. retail and food services sales in July rose 0.6% following a revised reading of 0.3% growth registered in June.

The rebound in oil prices from all-time lows, improving labor market and gradual recovery in the housing market signal that the economy is on a recovery mode. These factors are favorable for retailers and definitely play a crucial role in raising buyers’ confidence.

We expect this positive sentiment to translate in to higher consumer spending that may help revive sales. Not to forget, deadly hurricanes one after another, political gridlock and flaring tensions with North Korea may impact the economy to an extent and hurt consumer sentiment.

But for now you can focus on the following Retail/Wholesale stocks with a favorable combination of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. These stocks are backed by sound fundamentals, surging share price and a track record of better-than-expected results.

5 Stocks that Outpaced Their Respective Industries

Rush Enterprises, Inc. (RUSHA - Free Report) has emerged as a strong contender with a long-term earnings growth rate of 15% and a VGM Score of A. In a year, the stock has surged roughly 65.4% comfortably outperforming the industry’s growth of 5.5%. This integrated retailer of commercial vehicles and related services delivered an average positive earnings surprise of 27% in the trailing four quarters and flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

We also suggest investing in The Children's Place, Inc. (PLCE - Free Report) with a long-term earnings growth rate of 9% and a VGM Score of B. In a year, this Zacks Rank #1 stock has increased roughly 33.1%, while the industry witnessed a decline of 35.3%. This specialty retailer of children's apparel delivered an average positive earnings surprise of 16.3% in the preceding four quarters.

You may also consider Aaron's, Inc. (AAN - Free Report) , an omni-channel provider of lease-purchase solutions. The stock sports a Zacks Rank #1 and has a VGM Score of B. The company posted an average positive earnings surprise of 14% in the trailing four quarters. In a year, the stock has displayed a fabulous bull run on the index and has risen 72.7%, while the industry increased 36.9%.

Another lucrative option is The Home Depot, Inc. (HD - Free Report) , which has a long-term earnings growth rate of 13% and a VGM Score of A. This home improvement retailer delivered an average positive earnings surprise of 3.8% in the trailing four quarters and carries a Zacks Rank #2. We note that in a year, the stock has advanced approximately 16.1%, while the industry has gained 9.1%.

Investors can count on Herbalife Ltd. (HLF - Free Report) , which develops and sells weight management, sports and fitness, and nutritional and personal care products. The company posted an average positive earnings surprise of 25.1% in the trailing four quarters and has a VGM Score of A. In the trailing six months, this Zacks Rank #2 stock has exhibited a bullish run and surged roughly 29.4%, while the industry declined 5.3%.

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