A layman can end up losing bucks, if he decides to pick a stock only on the basis of numbers flashing on a real-time stock screen. However, the investor can resort to commonly used technique finding beaten down stocks that have the potential to recover faster than others. But this brings with it the risk of getting stuck in the value trap if the hidden weakness in a selected stock goes unidentified. So, wouldn’t it be a safer strategy to look for stocks that are winners currently and have the potential to gain further?
The new investment mantra is “buy high and sell higher”. One should primarily look for stocks that have recently been witnessing an increase in price driven by a broad set of factors — impressive sales, robust profitability, bullish earnings prospects and other major developments. Actually, stocks seeing price strength of late have a high chance of carrying the momentum forward. So, a look at stocks that have already won the game and are capable of setting a new benchmark sounds rational. You can ride on the stock bandwagon hovering close to their 52-week highs and book handsome profits.
Why Retail Stocks?
Despite occupying the bottom most position in the Zacks classified list, the Retail-Wholesale sector has been grabbing attention in investor world, thanks to growing dominance of Amazon (AMZN - Free Report) that have kept most of the retailers on their toes. As consumers splurge online for shopping, stores and mall traffic are drying up. This has shaken most retailers and compelled them to adopt omni-channel strategies. Retailers who have responded quickly to it by staying ahead technologically stand in good stead.
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. They are renovating stores, developing fulfillment centers and implementing an enterprise-wide inventory management system. The sector, which has advanced 18.2% so far in the year, looks promising given the favorable economic indicators and has also outperformed the S&P 500’s gain of 11.5%.
The rebound in oil prices from all-time lows, steadying labor market, and improving housing market and manufacturing sector signal that the economy is on a recovery mode. These factors are favorable for retailers. Steady job additions and gradual wage acceleration boost consumer confidence. We expect this positive sentiment to translate into higher consumer spending that may help increase sales in the current retail landscape.
4 Prominent Picks
Here we have highlighted four Retail/Wholesale stocks with 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. Not only this, these stocks have outperformed 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 B. In a year, the stock has surged roughly 76.9%, comfortably outperforming the industry’s growth of 8.4%. This integrated retailer of commercial vehicles and related services delivered an average positive earnings surprise of 27% in the trailing four quarters. This Zacks Rank #1 stock closed at $41.00 yesterday, near its 52-week high of $43.55. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 A. 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 72.6%, while the industry increased 46.8%. The stock closed at $43.16 yesterday, near its 52-week high of $48.22.
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 pulled off 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 25.1%, while the industry declined 1.4%. The stock closed at $68.97 yesterday, near its 52-week high of $74.49.
We also suggest investing in Five Below, Inc. (FIVE - Free Report) with a long-term earnings growth rate of 28.5% and a VGM Score of A. In a year, this Zacks Rank #2 stock has increased roughly 21.2%, while the industry witnessed a decline of 9.1%. This specialty value retailer delivered an average positive earnings surprise of 8.7% in the preceding four quarters. The stock closed at $50.47 yesterday, near its 52-week high of $54.13.
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