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4 Retail Growth Stocks for Higher Returns This Holiday Season

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Its again that part of the year, when investors’ focus automatically shifts toward the Retail-Wholesale sector. Wage acceleration, steady job growth, improving consumer confidence and sound economic fundamentals are painting an euphoric picture for the holiday season. Consequently, investors will definitely be on hunt to add some solid retail stocks that are likely to ride high on these bullish sentiments.

Few Fact Checks

The U.S. economy improved at its rapidest pace in nearly four years, expanding 4.2% during the April-June quarter, per the third estimate released by the Commerce Department. This quarterly GDP number displayed a remarkable improvement over 2.2% increase scaled in the first quarter. Economists believe that the economy is all set to achieve Trump administration’s GDP growth rate target of roughly 3%. Nevertheless, the impact of the trade war on the U.S. economy cannot be dismissed.

Another factor that makes the case strong for a delightful festive season is the buoyant consumer sentiment. U.S. Consumer Confidence — a key determinant of the economy’s health — reached its highest level since September 2000. Per the Conference Board data, the Consumer Confidence Index surged to 138.4 in September from August’s reading of 134.7 driven by strengthening labor market, tax reform and rising income. The U.S. economy added 201,000 jobs in the last month.

Quite apparently, consumer spending — one of the pivotal factors driving the economy — is also likely to remain strong, unless arrested by a sharp spike in gasoline prices that might lower their propensity to consume. As a result, a splendid festive season is in the offing. This is quite evident from the Deloitte’s recent holiday sales projection. Per the report, sales are expected to increase 5-5.6% between November 2018 and January 2019. Holiday sales, excluding motor vehicles and gasoline, are likely to be more than $1.10 trillion.

Retailers Are All Charged Up

Retail giants such as Target (TGT - Free Report) and Gap (GPS - Free Report) have announced hiring plans for the upcoming holiday season. Per media reports, Target intends to employ 1,20,000 associates, a 20% increase compared with the prior year. Gap is likely to appoint approximately 65,000 seasonal associates for its Gap, Banana Republic, Athleta and Old Navy stores. Macy's (M - Free Report) intends to hire approximately 80,000 seasonal workers.

Certainly, retailers are deploying resources to enhance omni-channel capacities, introducing new brands, remodeling or refurbishing stores and expanding same-day delivery options to expedite the shopping process this holiday season. Additionally, the retailers are rationalizing supply chain, improving store-related technology and augmenting ship-from-store capabilities.

From the above discussion it is quite apparent that the retail sector holds the baton, and adding a few stocks from the space would be a prudent decision.

4 Prominent Picks

We have identified four Retail-Wholesale Stocks based on a favorable combination of a Zacks Rank #1 (Strong Buy) or 2 (Buy), and Growth Style Score of A or B.

A stock worth considering is DSW Inc. (DSW - Free Report) , which has a long-term earnings growth rate of 9% and Growth Score of A. This branded footwear and accessories retailer delivered an average positive earnings surprise of 17% in the trailing four quarters. The stock, which flaunts a Zacks Rank #1, has surged roughly 52% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

You can also add Five Below, Inc. (FIVE - Free Report) to your portfolio. The company’s shares have soared about 76% in the past six months. This specialty value retailer has Growth Score of B with long-term earnings growth rate of 30%. This Zacks Rank #2 stock delivered an average positive earnings surprise of 14.8% in the trailing four quarters.

Investors can also count on BJ's Restaurants, Inc. (BJRI - Free Report) , which owns and operates casual dining restaurants. This Zacks Rank #2 company has a long-term earnings growth rate of 15.3% and Growth Score of A. The company has delivered an average positive earnings surprise of 6.4% in the trailing four quarters and advanced about 60% in the past six months.

The TJX Companies, Inc. (TJX - Free Report) , which operates as an off-price apparel and home fashions retailer, is also a solid bet with a Zacks Rank #2 and Growth Score of A. The stock has a long-term earnings growth rate of 10.6% and increased 37% in the past six months. It has recorded an average positive earnings surprise of 7.3% in the trailing four quarters.

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