Consumer Confidence Up: Time to Buy These 3 Retail Stocks
Consumer confidence – a key determinant of the economy’s health – improved significantly, reaching the pinnacle this August since October 2007. This implies better prospects for the economy in the second half of 2014 than the first half. We expect this positive sentiment to propel consumer spending, which accounts for over two-thirds of U.S. economic activity, and help retailers to make the most of it.
According to recent Conference Board data, the Consumer Confidence Index increased to 92.4 in August from 90.3 in July. Consumer confidence is gradually building up on a recovery in the housing market, strengthening manufacturing sector and improving labor market.
This indicates that the economy is gaining traction. Although the unemployment rate inched up to 6.2% in July from 6.1% in June, the drop in the unemployment rate over the past year is very impressive, with the current level being down from 7.3% in July 2013.
The overall economy looks quite convincing now with the Federal Reserve continuing to scale down the monthly bond-buying campaign, indicating a turnaround in economic activities. The purchase of mortgage-backed securities and Treasury securities reduced for the sixth time to $25 billion in August from $35 billion in July. Looking back, the Federal Reserve had initiated a monthly stimulus program of $85 billion to boost economic growth and keep interest rates low.
The market is cheerful again on favorable economic numbers. So far this year, the Dow Jones Industrial Average, Standard & Poor's 500 and NASDAQ Composite indices gained 4.1%, 9.2% and 10.3%, respectively, thereby shedding uncertainty in economic recovery.
The year ahead looks promising for retailers as stock prices gain momentum, the employment picture improves and consumer confidence moves north. This would help retail stocks take center stage. The data compiled by National Retail Federation hints at a sales increase of at least 3.9% in the second half of the year compared with 2.9% in the first half.
Banking on its wide spectrum, the Retail/Wholesale sector remains a lucrative investment opportunity, and identifying its future winners would be a prudent idea before taking an investment decision. Here we have highlighted three Retail/Wholesale stocks that may enrich your portfolio.
3 Prominent Picks
We suggest investing in Citi Trends, Inc. (CTRN), the retailer of urban fashion apparel and accessories. The stock holds a Zacks Rank #1 (Strong Buy) and has amassed a year-to-date return of roughly 37.6%. Though the stock looks pricey with a forward P/E (price-to-earnings) multiple of 41.54x, it should not disappoint investors given the company's long-term expected earnings growth of 15.0%. This Savannah, GA-based company delivered an average positive earnings surprise of 18.6% over the trailing four quarters.
BJ's Restaurants, Inc. (BJRI), casual dining restaurants in the Unites States, is another stock to bet on. This Zacks Rank #1 stock has amassed a year-to-date return of 21.5% and has a long-term earnings growth rate of 19.6%. Shares of this Huntington Beach, CA-based company trades at a forward P/E of 47.20x, a sharp discount to the industry average and are also attractive from an earnings growth perspective. The company delivered an average positive earnings surprise of 11.6% over the trailing four quarters.
Another stock that investors may look forward to is Lithia Motors Inc. (LAD), automotive retailer of new and used vehicles in the United States. Also a Zacks Rank #1 stock, this trades at a forward P/E of 17.28x, a slight premium to the industry average, and has amassed a year-to-date return of 28.2%. This Medford, OR-based company posted an average positive earnings surprise of 5.9% over the trailing four quarters, and has a long-term earnings growth rate of 25% that makes it look attractive.
We believe that the above stocks boast strong fundamentals and growth prospects that can quench investors’ appetites for market winners.
Read the Full Research Report on BJRI
Read the Full Research Report on CTRN
Read the Full Research Report on LAD
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