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4 Retail Stocks to Buy as Q2 Earnings Season Knocks

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Search for safe havens has intensified ever since the trade hostility between the United States and China commenced. However, its high time that you bury the trade related fears and rejig your portfolio, as second-quarter earnings season comes knocking. The reporting period is undoubtedly considered the ideal time to rebalance one’s bucket list, and with analysts looking quite optimistic about the season one must not miss the opportunity.

Per the latest Earnings Preview, total earnings for the S&P 500 index is expected to rise 19% in second-quarter 2018, with 11 of the 16 Zacks sectors likely to register double-digit earnings growth. Total revenues are projected to improve 8.2%.

Retail-Wholesale, which typically performs well in a maturing economic cycle, is among the sectors that are likely to steal the show this season. Markedly, the sector is anticipated to witness bottom-line growth of 18.3%, while top-line is anticipated to increase 7.9%. The underlying economic strength backed by robust job market, latest tax reform and pro-business policies are likely to act as catalysts for the sector.

Needless to say, aforementioned factors play a vital role in lifting consumer confidence that spells boon for retailers. We expect this positive sentiment to translate into higher consumer spending — one of the pivotal factors driving the economy. Per industry experts, the second-quarter GDP rate likely to come ahead of 4%. We note that consumer spending increased $27.8 billion or 0.2%, while personal income surged $60 billion or 0.4% in May.

Without an iota of doubt, retailers are the end gainers. Notably, the sector has advanced roughly 10% in the past three months outpacing the S&P 500’s growth of approximately 5%. So, picking stocks that are likely to trump estimates can fetch handsome returns. This is because a stock generally picks up steam on an earnings beat.

Picking the Prospective Winners for the Season

All said, we used the Zacks methodology and identified retail stocks that not only boast solid fundamentals but are also poised to beat earnings estimates this reporting cycle. Our research shows that for stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Consequently, investors can count on these stocks which are most likely to trump estimates.

Urban Outfitters, Inc. (URBN - Free Report) , which is expected to report second-quarter fiscal 2019 results on Aug 21, is a solid bet with a long-term earnings growth rate of 12%. The Zacks Consensus Estimate for the quarter is pegged at 76 cents. The company delivered an average positive earnings surprise of 19.8% in the trailing four quarters. This lifestyle specialty retailer offering fashion apparel and accessories, footwear and home décor has an Earnings ESP of +1.42% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Investors can even count on RH (RH - Free Report) with a Zacks Rank #1 and an Earnings ESP of +0.90%. The Zacks Consensus Estimate for the quarter is pegged at $1.71. The company delivered an average positive earnings surprise of 19.6% in the trailing four quarters. It has a long-term earnings growth rate of 24%. This home furnishings retailer is expected to report second-quarter 2018 results on Sep 5.

You may also consider Burlington Stores, Inc. (BURL - Free Report) with a Zacks Rank #2 and an Earnings ESP of +0.48%. The Zacks Consensus Estimate for the quarter is pegged at 96 cents. The company delivered an average positive earnings surprise of 17.8% in the trailing four quarters. It has a long-term earnings growth rate of 18.1%. This retailer of branded apparel products is expected to come out with second-quarter fiscal 2018 financial numbers on Aug 23.

Another lucrative option is CVS Health Corporation (CVS - Free Report) , provider of integrated pharmacy health care services. The stock has a Zacks Rank #2 and an Earnings ESP of +0.35%. The Zacks Consensus Estimate for the quarter is pegged at $1.61. The company registered an average positive earnings surprise of 2.6% in the trailing four quarters. It has a long-term earnings growth rate of 10.3%. The company is expected to announce second-quarter 2018 results on Aug 14.

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