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5 Growth Stocks to Scoop Up From Retail as GDP Rises 2.9%

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Brush off market volatility, here’s some good news to cherish. With unemployment rate still at a 17-year low, initial jobless claims below the psychological mark, consumer spending being impressive and government expenditure increasing, things appear to be fairly rosy for the U.S. economy. These sentiments were rekindled when the Bureau of Economic Analysis released its third and final estimate for real GDP yesterday.

Markedly, real GDP rose 2.9% in the fourth quarter of 2017, higher than the second estimate of 2.5% and analysts’ expectations of 2.7%. Moreover, real GDP for 2017 climbed 2.3% from the 2016 level, much better than 1.5% growth witnessed in 2016. Also, consumer spending (accounting for more than two-thirds of U.S. economic activity) grew 4% in the fourth quarter, marking its highest improvement since the fourth quarter of 2014.

Apart from this, the favorable economic indicators led to a sixth Fed rate hike last week (since the financial crisis), which was also followed by a raised GDP outlook for 2018. The Fed officials now envision GDP growth rate to be 2.7% up from 2.5% for the year, which may witness two more rate hikes. While President Trump’s latest take on trade policies may hurt business sentiment and expenditure on capital goods, analysts expect government spending and the $1.5-trillion tax cuts to boost economic growth in 2018.

Retail Space Rides on Favorable Indicators

Clearly, these factors bode well for the Retail-Wholesale sector that has surged 24.6% in a year, outperforming the S&P 500’s rally of 12.4%. As consumers form the lifeline of the sector, metrics like consumer spending and consumer sentiment remain the deciding factor of the retail space’s fate. Though soft traffic and mounting competition due to consumers’ evolving shopping patterns have made things challenging for retailers, they’re exploiting every nook and cranny to keep pace with the changing trends. Retailers are going all the way to enhance omni-channel capabilities, optimize store fleet and undertake restructuring activities.



How to Identify the Potential Winners?

That said, we picked five top-ranked stocks from the space that have gained more than 30% in a year, crushing the sector’s solid growth.

Backed by sound fundamentals and impressive past records, these stocks are surely to be a valuable addition to your portfolio. Moreover, these stocks carry a favorable Growth Style Score, thereby doubling the treat. Growth stocks have solid earnings or revenue growth potential, which should lead to higher stock prices. Our research shows that stocks with a Growth Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) provide the best returns.

Shuffle Your Portfolio: 5 Key Picks

California-based The Gap, Inc. (GPS - Free Report) , with a splendid earnings surprise history, is a solid bet. We commend Gap’s efforts to expand omni-channel operations and its solid focus on Old Navy and Athleta brands. Driven by these efforts, the company has surged about 31% over the past year, faring better than the sector. With a Growth Score of A and a long-term earnings growth rate of 8%, we expect this premier international specialty retailer to reach greater heights. Notably, this Zacks Rank #2 has seen its estimates for the current quarter and the fiscal go up by 5 cents and 32 cents to 46 cents and $2.63, respectively, over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Investors can also count on Burlington Stores, Inc. (BURL - Free Report) , which has seen its stock soar 33.5% in a year. This retailer of branded apparel products has been riding on solid comparable store sales and gross margin expansion trends, thanks to its strategic growth efforts like focus on store expansions. Moreover, the company has topped earnings estimates consistently for 17 straight quarters. Further, we remain optimistic about Burlington, given its Growth Score of A and a long-term growth rate of a solid 18.6%. Estimates of this Zacks Rank #2 company have gone up by 9.1% to $1.08 and 7.2% to $5.76 for the current quarter and fiscal respectively, over the past month.

You may also consider Boot Barn Holdings, Inc. (BOOT - Free Report) , a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, headquartered in California. The stock flaunts a Zacks Rank #2 and has a Growth Score of A. The company’s bottom line outperformed the Zacks Consensus Estimate by an average of nearly 23% in the trailing four quarters and has a long-term growth rate of  20.7%. Further, Boot Barn has seen estimates for the current quarter go up from 13 cents to 17 cents in the past 30 days. Notably, the company has put up a superb bull run over a year, with its shares up a whopping 73.7%.

Investors can also place bets on Kohl’s Corporation (KSS - Free Report) , which has returned 67.6% over the past year. Flaunting a Growth Score of A, this department store chain is likely to continue gaining from its superb traffic boosting initiatives, robust brand portfolio, inventory management efforts and growing e-commerce business. These strategies have helped this Zacks Rank #2 company deliver positive earnings surprises in three of the trailing four quarters. Also, the company with nine positive estimate revisions (in the last 30 days) for the current fiscal has a long-term growth rate of 6.7%.

Finally, we suggest taking a look at Tennessee-based, Dollar General Corporation (DG - Free Report) . This major discount retailer delivered an average positive earnings surprise of 2.3% in the trailing four quarters and carries a Zacks Rank #2. Moreover, the company has emerged as a strong contender with a long-term earnings growth rate of 14.6% and a Growth Score of B. Dollar General’s commitment toward better price management, cost containment, private label offering, effective inventory management, merchandise and operational initiatives should drive sales and margins. With estimates for the current quarter and fiscal moving north in the past 30 days, the company has returned 33% in a year.

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