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Holiday Retail Sales Off to a Strong Start: 5 Great Picks

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Retail sales increased in November, indicating that holiday season buying was off to a stellar start. Further, the increase in retail sales for October was revised significantly higher. The jump in sales also dispelled lingering concerns about the state of the economy. They also indicate that fourth-quarter expansion could exceed the initial set of modest projections.

A slide in spending at service stations was largely a result of a decline in gasoline prices. However, this was a positive development for consumers since it raised their purchasing power substantially. With only the first part of the holiday season out of the way, retail sales are set to remain robust over the next few months. This is why it makes good sense to invest in retail stocks at this time.

Strong November Sales Negate Slowdown Fears

According to the Department of Commerce, retail sales increased 0.2% in the month of November, in line with the consensus estimate. More significantly, October’s initial increase of 0.8% was revised upward to reflect an increase of 1.1%. Taken together, these increases suggest that the economy has started the fourth quarter on a far stronger note than initially estimated.

Further, core retail sales, which exclude the impact of gasoline, automobiles, building materials and food services, increased 0.9%. This is significantly higher than the 0.7% increase for October, which in itself has been upwardly revised. This metric closely corresponds to the consumer spending component of GDP.

The report will do much to dispel fears created by a yield curve inversion and heavy losses on Wall Street. Another factor negating economic concerns is the labor market’s ruddy health. Last week’s data on jobless claims shows that the number of Americans claiming unemployment benefits has once again fallen to a 49-year low.

Sales on Track to Meet Holiday Season Projections

Per the National Retail Federation’s (NRF) estimates, holiday retail sales for November and December are projected to increase between 4.3% and 4.8% year over year to between 717.45 billion and $720.89 billion. Incidentally, seasonally adjusted retail sales for October increased 0.7% on a monthly basis and were up 5% on a yearly basis.

This means that retail numbers for the first half of the holiday shopping season are on course to match the NRF’s forecast. These figures exclude the impact of auto, gas station and restaurant sales.

Coming back to the Commerce Department numbers for November, unadjusted retail sales increased 4.2% year over year. Service station sales plummeted 2.3%, the largest drop since 2017. According to the Energy Information Administration, gas prices have declined to 40 cents per gallon since October, leading to the slump in gas station receipts.

Headline sales numbers were powered by a 2.3% surge in online sales. Sales at furniture and home furnishing stores increased 1.2%. Electronics and appliance stores reported a 1.4% rise in sales. Auto sales, which account for around 20% of all retail sales, inched up 0.2%. Sales at department stores and miscellaneous store retailers each increased 0.4%.  

Our Choices

November’s increase in retail sales indicates that consumer spending has retained sufficient steam during the fourth quarter. This in turn is being supported by a robust labor market with jobless claims falling to a 49-year low last week.

These trends are also likely to continue supporting the economy in the near term. This is why it makes sense to invest in retail stocks, especially the categories that have gained substantially last month. 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 based on a good Zacks Rank and VGM Score.

Asbury Automotive Group, Inc. (ABG - Free Report) is one of the largest automotive retailers in the United States.

Asbury Automotive carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. The company has expected earnings growth of 28.7% for the current year. The Zacks Consensus Estimate for the current year has improved 1.1% over the last 30 days.

Ingles Markets, Incorporated (IMKTA - Free Report) is a leading supermarket chain with operations in the southeastern United States.

Ingles Markets carries a Zacks Rank #1 and has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved 3.2% over the last 30 days.

RH (RH - Free Report) is a leading luxury retailer in the home furnishing space.

RH has a VGM Score of A. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 11.8% over the last 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Casey's General Stores, Inc. (CASY - Free Report) and its wholly owned subsidiaries operate convenience stores under the names Casey's and Casey's General Store.

Casey's General Stores has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 27.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.6% over the last 30 days.

Fastenal Company (FAST - Free Report) is a national wholesale distributor of industrial and construction supplies.

Fastenal carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth of 34.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.1% over the last 30 days.

In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?

These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>