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Are There Any Stocks to Buy in Coronavirus-Hit Retail Sector?

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The rapidly spreading novel coronavirus has claimed innumerable lives, rattled the stock market and disrupted economic activities globally. The retail sector, in particular, has been dealt a massive blow with major supply-chain bottlenecks, reduced traffic, an increasing number of store closures, and limited hours of working. This will not only hurt sales and productivity but will also escalate cost burden as many retailers plan to continue giving payments and benefits to employees during this period of adversity.

Incidentally, several retailers have also chosen to call-off their guidance owing to difficulty in ascertaining the impact of the deadly virus on their performance. Some of them even pulled back dividends and halted share repurchases. They are even seeking revolving credit facility in an effort to improve financial flexibility amid the coronavirus-induced crisis.

The Broader Picture

As people are choosing to work from home and maintain social distancing, retailers have been focusing on bolstering omni-channel operations, curtailing costs and lowering risks in supply chain. They are resorting to location analytics and other data-driven tools to better engage with customers. To put it simply, digital sustainability has become the norm. It comes as no surprise that online grocery apps like Instacart and Shipt are witnessing record downloads.

A paradigm shift in consumers buying behavior is being noticed due to the pandemic. People are shopping essential items rather than making discretionary purchases. There has been a huge demand for toilet paper, disinfectants, masks, gloves, packaged water, medicines and related food staples. Moreover, as people cook meals demand for home appliances is also high.

As Americans are stocking up, companies are leaving no stone unturned to fill the shelves faster. Certainly, the increased demand calls for increased number of workers to ensure prompt services. Dollar General (DG - Free Report) , Walmart (WMT - Free Report) and Amazon (AMZN - Free Report) are hiring to ensure swift customer service amid such challenging times.

But this increase in demand is not enough to mitigate the losses the overall retail sector is bearing due to the COVID-19 outbreak, which has already taken a toll on employment and household income. Waning confidence and rising job losses are sure to hurt consumer spending activity, and no doubt retailers will be at the receiving end.

To halt economic meltdown, policy-makers are frantically working toward urgent repairs. The Fed announced a massive quantitative easing program and slashed the benchmark interest rate to near zero. President Trump signed a $2-trillion stimulus package aimed at helping workers, small industries and distressed companies on the brink of bankruptcy. Many Americans are likely to receive checks of up to $1,200 to meet the financial burdens.

Experts believe that once the coronavirus spread is contained and vaccine discovered, the retail sector, which touches every sphere of our life, is likely to witness a sharp rebound. Even now there are stocks that could be a great addition to your portfolio.

4 Prominent Picks

We have shortlisted stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Investors can count on Sprouts Farmers Market (SFM - Free Report) , which provides fresh, natural, and organic food products. The company remains focused on product innovation, expansion of e-commerce and enhancement of technology. It has launched mobile app to help customers experience hassle-free shopping. Moreover, the company has partnered with Instacart to offer same-day delivery to customers. The home delivery business is now available in most of the company’s stores. The company is trying all means to provide ready-to-eat, ready-to-heat, and ready-to-cook items. This Zacks Rank #1 company has a long-term earnings growth rate of 5.8% and a VGM Score of B. It has a trailing four-quarter positive earnings surprise of 28.7%, on average. Moreover, the Zacks Consensus Estimate for its current financial year earnings has moved up 4.8% in the past 30 days.

Costco (COST - Free Report) , which operates membership warehouses, is a solid bet with a Zacks Rank #2 and a VGM Score of B. The company has a trailing four-quarter positive earnings surprise of 3.1%, on average and a long-term earnings growth rate of 8.4%. The Zacks Consensus Estimate for its current financial year earnings has improved 1.6% in the past 30 days. The company’s growth strategies, better price management and strong membership trends reinforce its position. To drive its online sales, the company launched CostcoGrocery to deliver non-perishable items to buyer’s home, and expanded same day grocery delivery service in collaboration with Instacart. Recently, it acquired Innovel Solutions, a leading provider of third-party end-to-end logistics solutions. The buyout will boost Costco’s e-commerce capabilities and facilitate it to sell "big and bulky" items. We note that the company’s e-commerce comparable sales advanced 28.4% in the last reported quarter.

We also suggest investing in Casey's General Stores (CASY - Free Report) , with a long-term earnings growth rate of 8.2%. The company remains on track with its value creation plan to improve sales and profitability. This includes new fleet card program, price and product optimization, loyalty program, and digital engagements comprising mobile app and online ordering capabilities. Notably, sales across Grocery & Other Merchandise and Prepared Food & Fountain categories increased 7.1% and 6.8%, respectively, in the last reported quarter. This operator of convenience stores has a trailing four-quarter positive earnings surprise of 21.1%, on average. Additionally, the Zacks Consensus Estimate for its current financial year earnings has moved north by 1.3% in the past 30 days. The stock has a Zacks Rank #2 and a VGM Score of B.

Another stock worth considering is Rite Aid (RAD - Free Report) , which operates a chain of retail drugstores. When most companies are limiting store hours or shutting down operations across the United States in response to the coronavirus outbreak, Rite Aid has come forward to play its part in this crisis. The company is providing home delivery service to customers with an eligible prescription. Customers who belong to the Rite Aid wellness+ reward program will also be able to access healthcare professionals and pharmacists at 1-800-Rite Aid or via live chat on its website. The company’s bottom line has outpaced the Zacks Consensus Estimate in the last two reported quarters. The stock has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current financial year earnings has increased by a penny in the past 30 days.

Zacks Top 10 Stocks for 2020

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