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5 Solid Stocks to Buy as Retail Sector Continues to Expand

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U.S. retail sales jumped in September, beating analysts’ expectations of a decline as people continued to spend. This once again proves that people are a lot more confident despite a surge in new COVID-19 cases due to the Delta variant of the coronavirus.

Also, the back-to-back monthly rise in retail sales indicates that the upcoming holiday season will be good for retailers. However, e-commerce continued to play an important role in driving retail sales despite increased in-store traffic.

Retail Sales Rise in September

The Census Bureau said on Oct 15 that retail sales rose 0.7% in September, beating analysts’ expectations of a 0.2% decline. Excluding auto, retail sales rose 0.8%, better than analysts’ forecast of a 0.5% jump. On a year-over-year basis, retail sales jumped 13.9% and 15.6%, excluding auto-related sales.

September’s jump follows a 0.6% rise in August. The September gains come as a surprise because that month also saw the government ending the fiscal stimulus it has been providing to millions following the COVID-19 pandemic.

Moreover, the jump in September and August came despite predictions that economic growth would slow down due to the massive spread of the Delta variant of the coronavirus. Clearly, people’s confidence was not dented.

E-commerce Driving Retail Sales

One major reason behind September’s gains was the reopening ofschools and offices. This helped in driving sales as people shopped before going back to schools and offices. Also, many have been spending on outdoor sports and entertainment after the economy reopened.

Sales of sporting goods, music and books jumped 3.7%. Moreover, with rising gas prices, spending at fuel stations increased 1.8% month over month and a whopping 38.2% year over year.

That said, e-commerce continued to drive retail sales, increasing 0.6% in September on a month-over-month basis. E-commerce has been helping the retail sector ever since the pandemic struck and since then millions have been shopping online. Although the government has been easing coronavirus-related restrictions, and businesses and stores have reopened, most people are still shopping online.

Retail sales are likely to get a further boost during the upcoming holiday season, which is likely to help retailers even further. According to Mastercard SpendingPulse, holiday season retail sales are projected to grow 7.4% on a year-over-year basis and 11.1% from 2019. One of the major reasons for the jump should be a rebound in in-store shopping, which was not possible last year due to the pandemic.

Our Choices

Given this scenario, it would be ideal to invest in retail stocks with a strong online presence. We have hand-picked five stocks for you. Each of the stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Walmart Inc. WMT has evolved from just being a traditional brick-and-mortar retailer into an omnichannel player. In this regard, the acquisitions of Bonobos, Moosejaw and Parcel; the partnership with Shopify and Goldman Sachs; delivery programs like Walmart + and Express Delivery; and investment in the online e-commerce platform Flipkart are noteworthy. 

The company’s expected earnings growth rate for the current year is 15%. The Zacks Consensus Estimate for current-year earnings has improved 5.4% over the past 60 days. 

The Gap, Inc. GPS is a premier international specialty retailer offering a diverse range of clothing, accessories, and personal care products. It offers products for men, women, and children under the Old Navy, Gap, Banana Republic, Athleta, Intermix, and Hill City brands.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings improved 25.1% over the past 60 days. 

Best Buy Co., Inc. BBY is a multinational specialty retailer of consumer electronics, home office products, entertainment software, communication, food preparation, wellness, health, security, appliances and related services. 

The company’s expected earnings growth rate for next year is 26.2%. The Zacks Consensus Estimate for current-year earnings has improved 17.3% over the past 60 days.

Target Corporation TGT has evolved from being a pure brick & mortar retailer to an omni-channel entity. The company has been investing in technologies, improving websites and mobile apps, and modernizing the supply chain to keep pace with the changing retail landscape and better compete with pure e-commerce players.

The company’s expected earnings growth rate for next year is 37.4%. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the past 60 days. Target sports a Zacks Rank #2.

Macy's, Inc. M is in the process of a complete makeover and has outlined plans under its three-year Polaris Strategy to adapt better to the new retail ecosystem. Notably, the company is banking on Backstage locations, Vendor Direct, Store Pickup, Loyalty Program, Growth150 stores, the mobile first strategy and Destination Businesses. 

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 61% over the past 60 days.


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