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5 Solid Stocks to Buy on the Second Straight Retail Dip

Tirthankar Chakraborty

U.S. retail sales fell for a second straight month in March, highlighting the extent of loss in terms of economic growth in the first quarter. Total sales at nationwide retailers dropped primarily because of cheaper gas and a drop in receipts at auto dealerships.

However, if autos and gas are excluded, retail sales seem to have risen substantially. Electronic stores had a particularly strong month as did clothing stores. Also, Internet retailers witnessed a healthy increase in sales. Lest we forget, high consumer confidence and steady rise in wages will certainly drive retail sales going forward. Hence, investing in retail segments that have showed considerable strength won’t be a bad proposition.

Inside the Retail Report

Sales at U.S retailers fell for the second straight month in March, mostly due to weaker gasoline and auto sales. Overall sales declined 0.2%, matching the consensus estimate of the Commerce Department. Last month, sales at gasoline stations fell 1% because of lower prices, while auto dealers’ revenues were down 1.2%. Sales at some other categories were also weak. Sales at furniture stores, sporting good outlets, and restaurants and bars declined 0.3%, 0.8% and 0.6%, respectively.

The apparent slowdown is also partly blamed on the slower than usual issuance of tax refunds by the government. At the same time, economists have said that snowstorms in the Midwest and Northeast could have kept shoppers at home, thereby, affecting sales. However, what made the decline even worse was a government update to sales figure for February, reflecting a drop of 0.3% in contrast to the 0.1% increase reported at first.

Core Retail Sales Edge Up

Nevertheless, a core measure that excludes volatile items saw solid growth in March. Core retail sales that exclude volatile items like autos, gasoline, food services and building materials increased 0.5%. A 2.6% uptick at electronics and appliance stores, 1% at clothing shops and 0.3% at general merchandise stores helped offset declines. U.S. retailers, particularly from segments such as home-and-garden centers and drug stores, have also done reasonably well.

The latest retail sales figures underscore consumers’ ongoing shift from traditional brick-and-motor retailers to e-commerce platforms. Nonstore retailers that generally constitute online shopping at outlets such as Amazon.com, Inc. AMZN registered a gain of 0.6% from the prior month and a 11.9% increase from a year earlier.

Future Trends Hold Promise

Not only did retailers fare well for the most part, economists expect sales to accelerate soon in the light of higher consumer confidence and a steady rise in wages. U.S. consumer confidence leaped in March to the highest level since Dec 2000 amid growing labor market optimism. As per the Conference Board, the consumer confidence index jumped to 125.6 in March from 116.1 in February, surpassing the consensus expectation of 113. Such a record consumer confidence number is a significant reading since it has been, historically, good at predicting future consumer spending for the next three to six months.

Additionally, about 27.1% of consumers expect better business conditions in the next six months, the highest since Dec 2003, while 21.5% anticipate a rise in income over the same time frame, again the highest since 2006. Consumers also feel optimistic about the jobs market. Share of those saying that jobs are “plentiful” increased from 26.9% to 31.7%. Meanwhile, hourly earnings for an average American worker inched up 0.2% to $26.14 an hour in March, as per the Labor Department.

Play Smart with These 5 Retailers

The soft sales have largely been concentrated among auto dealers and gas stations. However, investing in the abovementioned segments that have gained will be prudent. After all, the projections for consumer spending levels look bright, which will further boost sales at such segments. We have, thus, selected five solid retail stocks that also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Best Buy Co Inc BBY is a provider of technology products, services and solutions. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings increased 6% over the last 60 days. The company is likely to return 3.5% this year, in contrast to the Retail - Consumer Electronics industry’s projected negative return of 3.6%. The company has outperformed the broader industry on a year-to-date basis (+13.12 vs +7.66)

Foot Locker, Inc. FL is a retailer of shoes and apparel. The company operates through two segments: Athletic Stores and Direct-to-Customers. Foot Locker has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings increased 2.7% over the last 60 days. The company is likely to return 11.9% this year, in contrast to the Retail - Apparel and Shoes industry’s projected negative return of 3%. The company has outperformed the broader industry on a year-to-date basis (+1.69 vs -13.25)

Childrens Place Inc PLCE is a pure-play children's specialty apparel retailer in North America. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings increased 11.4% over the last 60 days. The company is likely to return 22.1% this year, in contrast to the Retail - Apparel and Shoes industry’s projected negative return of 3%. The company has outperformed the broader industry on a year-to-date basis (+8.92 vs -13.25). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mercadolibre Inc MELI is an e-commerce company. Mercadolibre has a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings increased 6.7% over the last 60 days. The company is likely to return 23.9% this year, more than the Internet - Commerce industry’s estimated gain of 19.1%. The company has outperformed the broader industry on a year-to-date basis (+37.99 vs +22.21).

EVINE Live Inc EVLV is a digital commerce company. The company operates through the digital commerce retailing segment. EVINE Live has a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings increased more than 100% over the last 60 days. The company is likely to return 109.5% this year, higher than the Internet - Commerce industry’s estimated gain of 19.1%. The company has outperformed the broader industry in the last one month period (+6.11 vs +2.7).

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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
 
MercadoLibre, Inc. (MELI): Free Stock Analysis Report
 
EVINE Live Inc. (EVLV): Free Stock Analysis Report
 
Foot Locker, Inc. (FL): Free Stock Analysis Report
 
Children's Place, Inc. (The) (PLCE): Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY): Free Stock Analysis Report
 
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