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6 Top-Ranked Stocks to Buy as Retail Sales Remain Robust

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In June, retail sales increased substantially, marking the fifth straight month of gains. Though autos and gasoline led the charge, gains were largely broad-based. It seems that a combination of tax cuts and consistent job additions are supporting growth in household purchases.

Additionally, retail sales for May were revised upward, providing credence to the view that consumer spending likely increased during the second quarter. Investing in stocks from the retail sector would make for a profitable proposition now, since such a trend bodes particularly well for consumers.

Autos, Restaurants, Online Sellers Lead Gains

According to the Department of Commerce, retail sales increased by 0.5% during the month of June, in line with the consensus estimate. Retail sales have increased 6.6% year over year, a touch above the long-run average since 1980. Additionally, May’s increase was revised substantially upward, from 0.8% to 1.3%. This is the fastest pace of growth witnessed since September 2017.

Gains took place across eight out of 13 categories. Auto sales advanced by 0.9% after increasing by 0.8% in May. Sales at gasoline stations increased by 1%, boosted by a spike in gasoline prices. Nonstore retailers, which include online sellers, experienced a 1.3% increase in sales, the highest since November.

Additionally, sales at health and personal care stores increased by 2.2%, the fastest pace of gains since 2004. Sales at restaurants and building material stores increased by 1.5% and 0.8%, respectively. Furniture and home furnishing stores experienced a 0.6% increase in sales.

Sales Spike, Trade Deficit Dip Likely to Boost Q2 GDP

Some major retail categories also witnessed declines. Sales at food and beverages stores declined 0.3%, which is the most in a year. Department store sales suffered a 1.8% decline, the largest since 2016. Meanwhile, clothing stores saw sales fall by 2.5%, the highest decline since February 2017.

Retail sales excluding gasoline, autos, building materials and food services remained unchanged over the month of June after increasing by 0.8% in May. This core portion of retail sales closely corresponds to the consumer expenditure component of GDP.

But the upward revision for May’s aggregate retail sales figures shows that expectations for higher consumer expenditure in the second quarter are not wholly unfounded. The increase in retail sales and decline in the trade deficit figures for April and May are raising expectations for an upswing in GDP during the second quarter.

Our Choices

A stronger labor market is boosting wage gains, leading to a spurt in consumer spending. Expenditure is also being driven by savings and tax cuts. Overall, the American consumer is more confident than ever, which is leading to a consistent appreciation in retail sales.

In a situation where household purchases will once again be the engine for growth, adding retail stocks to your portfolio looks like a good option. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

America's Car-Mart, Inc. (CRMT - Free Report) operates automotive dealerships and is one of the largest automotive retailers in the United States focused exclusively on the Buy Here/Pay Here segment of the used car market.

America's Car-Mart has a VGM Score of A. The company has expected earnings growth of 28.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days.

CarMax, Inc. (KMX - Free Report)  operates as a retailer of used cars in the United States.

CarMax has a VGM Score of A. The company has expected earnings growth of 24.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.7% over the last 30 days.

Carrols Restaurant Group, Inc. (TAST - Free Report) is an operator of franchisee restaurants of Burger King.

Carrols Restaurant Group has a VGM Score of A. The company’s projected growth rate for the current year is 70%. The Zacks Consensus Estimate for the current year has improved by 30.8% over the last 60 days.

Papa Murphy's Holdings, Inc. (FRSH - Free Report) is the owner operator and franchisor of Take 'N' Bake pizza stores in the United States.

Papa Murphy's Holdings has a VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 14.8% over the last 30 days.

RH (RH - Free Report) , formerly known as Restoration Hardware, is a leading luxury retailer in the home furnishing space.

RH has a VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 0.6% over the last 30 days.

GMS Inc. (GMS - Free Report) is a distributor of wallboard and suspended ceilings systems.

GMS Inc. has a VGM Score of A. The company’s projected growth rate for the current year is 61.6%. The Zacks Consensus Estimate for the current year has improved by 17.5% over the last 30 days.

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