3 Retail Stocks to Beat Despite Subdued December Sales - Analyst Blog
Baffled by the inability of cheap gasoline and more jobs to perk up December retail sales, investors are now busy scanning the retail stocks in their portfolio. With a rebounding economy and increased consumer confidence the retail space was charged up but it did not hear the cash registers jingle.
Data compiled by the Commerce Department revealed that retail sales dropped 0.9% in December – the biggest decline since Jan 2014 – and missed the forecast of a 0.1% drop by miles. The dismal results followed a 0.4% jump in November that also was revised down from 0.7% growth originally reported. The major contributor to this decline was the sizeable 6.5% decrease in sales at gas stations due to plummeting gasoline prices.
A panel of experts believes that weak income gains and the cloud of obscurity gradually engulfing the global economy thanks to the beleaguered Russian economy, a stagnating European financial system and ambiguity in China may have also stopped consumers from spending freely.
However, the only ray of hope was the data from National Retail Federation (NRF) that portrays an impressive holiday season since 2011. According to NRF, holiday retail sales for the November-December period increased 4% to $616.1 billion, falling shy of 4.1% projected earlier.
It is quite apparent that the ongoing earnings season is characterized by number of events. On the one hand, plunging oil prices and economic growth on domestic turf raised confidence; on the other, overseas political and economic woes derailed the same, thus leaving investors perplexed.
Here the Zacks’ formula of a profitable mix comes into play, helping investors in identifying stocks that have the potential to be market winners. This increases the chance of getting higher returns even when market conditions are not congenial.
Profitable Mix: Favorable Zacks Rank + Positive Earnings ESP
A favorable rank indicates positive estimate revisions by analysts optimistic on the future performance of companies. Moreover, Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
For investors seeking to apply this strategy to their portfolio, we have highlighted 3 Retail/Wholesale stocks that may stand out this earnings season. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Prominent Picks
O'Reilly Automotive Inc. (ORLY) is a Zacks Rank #1 (Strong Buy) stock having an Earnings ESP of +2.40%. The current Zacks Consensus Estimate for the fourth quarter of 2014 is $1.67 per share, portraying 19.2% growth from the prior-year period. This Springfield, MO based retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the U.S., registered an average positive earnings surprise of 4.2% over the trailing four quarters, and has a long-term earnings growth rate of 15.9%. The company is slated to report on Feb 4, 2015.
Ross Stores Inc. (ROST) is a Zacks Rank #2 (Buy) stock having an Earnings ESP of +2.70%. The current Zacks Consensus Estimate for fourth-quarter fiscal 2014 is $1.11 per share, portraying 8.7% growth from the prior-year period. This Dublin, CA based operator of off-price retail apparel and home fashion stores in the U.S., registered an average positive earnings surprise of 2.7% over the trailing four quarters, and has a long-term earnings growth rate of 11.6%. The company is expected to report on Feb 26, 2015.
BJ's Restaurants, Inc. (BJRI) is a Zacks Rank #2 stock having an Earnings ESP of +4.76%. The current Zacks Consensus Estimate for fourth-quarter 2014 is 21 cents a share, portraying an increase of over threefold from the prior-year period. This Huntington Beach, CA based operator of casual dining restaurants in the U.S., registered an average positive earnings surprise of 33.8% over the trailing four quarters, and has a long-term earnings growth rate of 20.1%. The company is scheduled to report on Feb 18, 2015.
Bottom Line
Who doesn’t want a portfolio of stocks that have the potential to outperform and beat earnings estimates? You can use Zacks Stock Screener to find other stocks with this winning combination.
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O REILLY AUTO (ORLY): Free Stock Analysis Report
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ROSS STORES (ROST): Free Stock Analysis Report
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