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5 Retail Stocks to Lift Spirit Despite Soft November Sales

Sumit Singh

U.S. retail sales showed continued rise going into November but the rate of growth fairly moderated. As Americans refrained from splurging on clothing stores and restaurants, retail sales exhibited a slight uptick, signaling a soft start to holiday-shopping season and raising concerns about the economy losing steam in the October-December period.

Analysts also pointed that with Thanksgiving occurring a week later this year, there were fewer shopping days after Black Friday. Nevertheless, an upwardly revised October sales data, solid labor market and steady wage gains show that the economy still has some spark. Moreover, consumer spending — one of the pivotal factors driving the economy — is likely to regain strength as U.S.-China trade tensions de-escalate.

Retail Sales Growth Slows

The Commerce Department stated that U.S. retail and food services sales in November rose 0.2% to $528 billion, following an upwardly revised reading of 0.4% gain in October. Notably, retail sales improved 3.3% from November 2018.

The report suggests that sales at health & personal care stores fell 1.1%, while sales at sporting goods, hobby, book & music stores declined 0.5%. Meanwhile, sales at both clothing & clothing accessories and department stores decreased 0.6%. Sales at food services & drinking places slid 0.3%.

We note that sales at motor vehicles and parts dealers rose 0.5%, while the same at electronics & appliance stores increased 0.7%. Meanwhile, sales at food & beverage stores rose 0.3%, while at furniture & home furnishing stores sales improved 0.1%. Meanwhile, receipts at gasoline stations rose 0.7%. Non-store retailers witnessed a 0.8% jump in sales, which surged 11.5% from the prior-year period.

Is This a Temporary Blip?

Some industry experts are of the opinion that the slowing of retail sales in November may be a temporary phase, and could bounce back in December, given the underlying strength in the economy as of now. The economy added 266,000 jobs in November and the unemployment rate falls to 50-year low of 3.5%.

Moreover, the National Retail Federation envisions holiday retail sales to advance 3.8-4.2% this season (excluding automobiles, restaurants and gasoline). Online and other non-store sales are expected to grow 11-14%. Last year, holiday sales rose just 2.1%, per NRF.

Certainly, favorable economic indicators bode well for the Retail & Wholesale sector. Investing in the sector seems profitable right now, as it falls within the top 7% (1 out of 16 sectors) of the Zacks Sector Rank. Notably, the sector has advanced roughly 24% so far in the year. Thus, we have shortlisted five stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B.

5 Prominent Picks

We suggest investing in Target Corporation TGT with a long-term earnings growth rate of 7.5% and a VGM Score of B. This general merchandise retailer has a trailing four-quarter positive earnings surprise of 8.6%, on average. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Another stock worth considering is Lithia Motors, Inc. LAD, which has a long-term earnings growth rate of 9.7%. This automotive retailer has a trailing four-quarter positive earnings surprise of 7.6%, on average. The stock, which flaunts a Zacks Rank #1, has a VGM Score of A.

Tilly's, Inc. TLYS, which retails casual apparel, footwear, and accessories, is also a solid bet with a Zacks Rank #1 and a VGM Score of B. The company has a long-term earnings growth rate of 11%. The company has a trailing four-quarter positive earnings surprise of 43.1%, on average.

Investors can also count on Best Buy Co., Inc. BBY, which operates as a retailer of technology products, services, and solutions. This Zacks Rank #2 company has a long-term earnings growth rate of 8.7% and a VGM Score of A. The company has a trailing four-quarter positive earnings surprise of 9.9%, on average.

You can also add Office Depot, Inc. ODP to your portfolio. This provider of business services and supplies, products, and technology solutions has a long-term earnings growth rate of 11.1% and a VGM Score of A. This Zacks Rank #2 stock has a trailing four-quarter positive earnings surprise of 19.1%, on average.

Zacks Top 10 Stocks for 2020

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>

Click to get this free report Lithia Motors, Inc. (LAD) : Free Stock Analysis Report Tilly's, Inc. (TLYS) : Free Stock Analysis Report Best Buy Co., Inc. (BBY) : Free Stock Analysis Report Target Corporation (TGT) : Free Stock Analysis Report Office Depot, Inc. (ODP) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research