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Defy Soft Consumer Spending With These 4 Retail Stocks

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Recent data from Bureau of Economic Analysis revealed that consumer spending moderated in the month of May, sparking fears of slowdown in economic growth during April-June quarter. Following a subdued GDP growth rate in the first quarter, economists were expecting the same to accelerate in the second quarter but soft spending has somewhat dampened the fervor. Nevertheless, personal income improved and Americans focused more on savings.

Consumer spending — one of the pivotal factors driving the economy — increased $27.8 billion or 0.2% in May, following a reading of 0.5% growth in April and 0.6% jump in March. Analysts were quick to point out that this was the weakest pace since February, when spending had dipped 0.1%. Meanwhile, personal income surged $60 billion or 0.4% in May, following an increase of 0.2% and 0.3% in the months of April and March.

Despite this hiccup, market experts believe that the economy remains well on track thanks to $1.5 trillion income tax cut package that is likely to spur economic growth ably supported by improving job scenario and rising consumer confidence. However, fears of trade war cannot be overlooked as it may undermine business prospects. Moreover, surge in oil prices on supply concerns, principally due to U.S. sanctions against Iran and likelihood of two more rate hikes this year courtesy of firming inflation cannot be forgotten.

Nevertheless, you can still defy the soft consumer spending by focusing on stocks that look fundamentally sound and are backed by favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) along with a VGM Score of A or B. Here we have highlighted four such stocks from the Zacks Retail-Wholesale sector, which occupies a top 25% position in the list of Zacks Sectors (4 out of 16). Notably, the sector has advanced roughly 8% in the past three months outpacing the S&P 500’s growth of approximately 3%.

4 Prominent Picks

Dillard's, Inc. (DDS - Free Report) , which operates retail department stores, has a VGM Score of B and an expected EPS growth rate of 10.2% for 3-5 years. This Zacks Rank #1 stock has exhibited a bullish run on the bourses as evident from its surge of 61%. You can see the complete list of today’s Zacks #1 Rank stocks here.

RH (RH - Free Report) , a home furnishings retailer, has a VGM Score of B. The stock has an expected EPS growth rate of 24% for 3-5 years. Shares of this Zacks Rank #1 company have rallied about 55% in the past six months.

America's Car-Mart, Inc. (CRMT - Free Report) , which operates as an automotive retailer, has a VGM Score of B. This Zacks Rank #1 stock has surged roughly 40% in the past six months.

Good Times Restaurants Inc. (GTIM - Free Report) , operator of quick service restaurants, carries a Zacks Rank #2. The stock, which has soared approximately 44% in the past six months, has a VGM Score of A and an expected EPS growth rate of 30% for 3-5 years.

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