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5 Retail Stocks to Counter September's Weak Sales Data

Zacks Equity Research

Investors got spooked after U.S. retail sales fell unexpectedly in September, but National Retail Federation (NRF) had forecast a rise in holiday spending, and that should eventually bode well for retailers.

Opportunistic investors should cash in on such positive forecasts and buy fundamentally sound retail stocks now. Moreover, by buying such stocks you won’t be burning a hole in your pocket, these have recently gone down due to September’s weak sales reading.

September’s Retail Sales Fall But NRF Forecasts Strong Holiday Sales

Retail sales, a key measure of consumer spending unexpectedly dropped in September, breaking its seven-month-long streak. As per U.S. Commerce Department’s report on Oct 16, retail sales for September fell 0.3%, after being revised to a 0.6% increase in August. Consumer spending has been a key factor that has propelled the U.S. economy, which is clouded by the U.S.-China trade war.

A 0.9% decline in auto sales mostly weighed on retail sales. Further, sales at gas stations also declined 0.7%. There was a 0.1% drop in sales posted in buildingmaterials stores and hobby, musical instrument and book stores, and online sales dropped 0.3% for the first time in this year.

Even amid this slowdown, NRF’s forecast of a rise in holiday spending cannot be neglected. On Oct 3, NRF released its retail predictions for the upcoming holiday season of a 3.8% to 4.2% rise in holiday sales. As per the forecast, retail sales in November and December are expected to rise between a total of $727.9 billion and $730.7 billion.

As per reports, last holiday sales totaled $701.2 billion, which recorded an increase of 2.1% in spite of government shutdown, a highly volatile stock market, tariffs issues and more. However, this time, to counter the price rise due to trade war tariffs, retailers are using countless tactics to mitigate this problem and encourage consumers to buy more.

Though uncertainties still loom on the United States and China trade front, the tariff hike imposed on Chinese imports scheduled on Oct 15 was called off by the White House post the U.S.-China high level trade talk on Oct 11. This has definitely eased retailers’ tensions.

With Halloween and Thanksgiving knocking on the door, we can surely get a glimpse of this holiday spending trend as the government releases October’s retail sales data on Nov 15.

Buy These Five Retail Stocks Now

As per NRF’s chief economist Jack Kleinhenz, “There is significant economic unease, but current economic data and the recent momentum of the economy show that we can expect a much stronger holiday season than last year.”  He has been consistent in pointing toward higher wages that could push consumers to spend during the holidays, irrespective of trade war fears.

Hence, investors can count on the positive forecast for holiday spending and buy these five retail stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Boot Barn Holdings, Inc. BOOT is a publicly traded company that operates lifestyle retail chain devoted to western and work-related footwear, apparel and accessories. The company’s expected earnings growth rate for the current year is 23.7%, above the industry’s projected rally of 1.2%. The Zacks Consensus Estimate for current-year earnings has improved 1.2% over the past 60 days.

Boot Barn Holdings carries a Zacks Rank #1 and has outperformed the Retail - Apparel and Shoesindustry over the past one-month period (+33.5% vs –37.7%). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aaron's, Inc. AAN is a publicly traded omni-channel provider of lease-purchase solutions, mainly to underserved and credit-challenged customers. Aaron’s stores offers products from popular brands like Philips, Samsung, Whirlpool, Hewlett-Packard, LG, Simmons, and Ashley The company’s expected earnings growth rate for the current year is 17.6%, in contrast to industry’s decline of 2.5%.

The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the past 60 days.Aaron's carries a Zacks Rank #1 and has outperformed the Retail - Consumer Electronics industry over the past one-month period (+46.8% vs –4%).

Shake Shack Inc. SHAK is a publicly traded company that owning and operating restaurants across major cities of the United States. The company’s expected earnings growth rate for the next year is 16.9%, above the industry’s projected rally of 11%. The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the past 60 days.

Shake Shack carries a Zacks Rank #1 and has outperformed the Retail - Restaurants industry over the past one-month period (+57.2% vs +25.8%).

Zumiez Inc. ZUMZ is a publicly traded specialty retailer selling a range of apparel, footwear and accessories. The company’s expected earnings growth rate for the current year is 20.7%, above the industry’s projected rally of 1.2%. The Zacks Consensus Estimate for current-year earnings has improved 14.3% over the past 60 days.

Zumiez carries a Zacks Rank #1 and has outperformed the Retail - Apparel and Shoes industry over the past one-month period (+45% vs -37.7%).

Dollar General Corporation DG is a publicly traded discount retailer selling a wide selection of merchandise, including consumable items, seasonal items, home products and apparel. The company’s expected earnings growth rate for the current year is 10.7%, above the industry’s projected rally of 9.7%. The Zacks Consensus Estimate for current-year earnings has improved 2% over the past 60 days.

Dollar General carries a Zacks Rank #2 and has outperformed the Retail - Discount Stores  industry over the past one-month period (+49.5% vs +26.9%).

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Aaron's, Inc. (AAN) : Free Stock Analysis Report
 
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