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E-Commerce Hogging Limelight: 4 Retailers Worth Buying

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Thanks to the COVID-19 perils, consumers have largely shifted to e-stores from the traditional brick-and-mortar ones. As coronavirus cases continue to mount in the United States, Internet retailing is likely to retain a bigger share over the coming period to keep the pandemic at bay.

Per the Census Bureau of the Department of Commerce, U.S. e-commerce retail sales for the first quarter of 2020 were $160.3 billion, up 14.7% from the corresponding quarter a year earlier. According to the eMarketer forecast, U.S. e-commerce retail sales are expected to increase 18% this year, with Americans willing to spend nearly $709.8 billion on e-commerce. This is likely to account for 14.5% of the overall U.S. retail sales.

Further, brick-and-mortar retail spending is forecast to plunge 14% to $4.184 trillion in 2020. Anyway, physical retailing is losing sheen.

An Insight

Even prior to this deadly virus attack, the U.S. retail space was already undergoing a sheer transformation in its mode of operation. Here, the idea of adopting the omni-channel mantra was to offer consumers a seamless shopping experience. No wonder, the coronavirus pandemic that led to the temporary closure of stores accelerated the digitization efforts with consumers remaining homebound to curb the virus spread.

Accordingly, retailers directed their resources toward the e-commerce operating model. Majority of them also adopted a contactless curbside pickup service, which has now become quite popular, thus minimizing physical contact and inside-store hassles. Retailers including bigwigs like Amazon (AMZN - Free Report) , Walmart (WMT - Free Report) and Target (TGT - Free Report) that bank on e-commerce concepts are benefiting tremendously.

As the fatal disease has wreaked havoc on economic activities including the share market, majority of the stocks are now losing investors’ favor. So, it comes as no surprise that investors are now looking for stocks with sound fundamentals and sturdy returns.

Here we have shortlisted four retail stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Also, these top-notch performers are standing out on the e-commerce front and placed well for sustainable growth with a feasible earnings picture. Impressively, all four companies have outperformed the Retail-Wholesale sector’s 21.3% growth and the broader S&P 500 Index’s 7% gain in the 12-month time frame, defying coronavirus woes.

4 Lucrative Picks

You may invest in The Kroger Co. (KR - Free Report) , which has been standing out on e-commerce operations. The grocery retailer registered a sharp rise in sales across brick-&-mortar stores and digital channels during first-quarter fiscal 2020. Its digital sales surged 92% in the fiscal first quarter versus 22% in the preceding quarter. Understanding the need of the hour, the company offered a no-contact delivery option, low-contact pickup service and ship-to-home orders. It also continued to expand contactless payment solutions like Kroger Pay. The company has been making prudent investments to bolster omni-channel operations, improve the supply chain and increase manpower to ensure swift customer service in such trying times. It has an average trailing four-quarter positive earnings surprise of 4% and a long-term earnings growth rate of 5.5%. Moreover, the Zacks Consensus Estimate for its current financial year earnings is pegged at $2.72, suggests 23.6% year-over-year growth. The stock, with a Zacks Rank #1 and a VGM Score of A, has returned 46.9% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Next, we have Sprouts Farmers Market, Inc. (SFM - Free Report) , which has been benefiting from coronavirus-led demand. Amid the pandemic, this fresh and organic food products’ company has expanded its grocery pickup service in partnership with Instacart, across all its stores. The service offers more than 12,000 natural and organic products. The company’s focus on product innovation, emphasis on e-commerce, expansion of private-label assortment and enhancement of technology bode well. These initiatives helped the company sustain its positive comparable store sales trend in first-quarter 2020. The company benefited from a spike in demand during the latter part of the quarter as Americans stockpiled essential items, which continued in the early second quarter. The retailer delivered an average trailing four-quarter positive earnings surprise of 37.2% and has a long-term earnings growth rate of 9.2%. Moreover, the Zacks Consensus Estimate for its current financial year earnings stands at $1.67, hinting at a 33.6% year-over-year improvement. The Zacks Rank #1 stock with a VGM Score of A has displayed a bullish run on the bourses, gaining 25.7% in a year.

We also suggest investing in Big Lots, Inc. (BIG - Free Report) , which is seeing strength in its e-commerce and transformational efforts. Management is focused on improving performance by enhancing digital capabilities with “Buy Online Pick-up In Store,” launching of the Broyhill brand and expanding high-volume stores. Also, its “Lease Online Pickup in Store” initiative has been well received by customers. Big Lots saw the highest e-commerce volume during the first quarter of fiscal 2020 since the launch of its e-commerce platform in April 2016. Its transformation initiative, referred to as Operation North Star also focuses on enhancement in systems and infrastructure. The general merchandise retailer sports a Zacks Rank #1 and VGM Score of A. It delivered an average four-quarter positive earnings surprise of 62.2% and has a long-term earnings growth rate of 7.1%. The Zacks Consensus Estimate is $4.39 for its current financial year earnings, suggesting year-over-year improvement of 19.6%. Its shares have advanced 21.4% over the past year.

Finaly, we have a leading discount retailer, Dollar General Corporation (DG - Free Report) , which has been gaining from its customer-oriented efforts. The company has been rolling out the DG digital coupon program, and has DG GO! mobile checkout in roughly 750 of its stores. Moreover, the company’s DG Pickup initiative, which promotes buy online and pickup in store, is also gaining traction. Management introduced two transformational strategic initiatives — DG Fresh, designed to enable self-distribution of fresh and frozen products and Fast Track, an in-store labor productivity and customer-convenience initiative. The company delivered an average four-quarter positive earnings surprise of 16.9% and has a long-term earnings growth rate of 12.4%. The Zacks Consensus Estimate is pegged at $8.84 for its current financial year earnings, indicating year-over-year growth of 31.4%. The Zacks Rank #2 stock with a VGM Score of A has surged 39.7% in a year.

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