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6 Stocks to Buy on Strong Retail Sales

Swarup Gupta

Retail sales increased last month, capping off what was a strong year for consumer spending. Consumers spent heavily on automobiles, furniture and building materials among other categories during December as improving economic conditions translated into higher purchasing power. Particularly significant in this regard is recent labor data which reveals a substantial year over year increase in wages.  

President-elect Trump’s electoral promises are also likely to boost economic growth in the days ahead. This is why investing in stocks from the retail categories which gained last month makes for a good option at this juncture.

December Retail Sales, Holiday Purchases Rise

According to the Census Bureau’s report released on Friday, retail and food services sales increased by 0.6% to $469.1 billion in December. This is higher than the revised gain of 0.2% reported for November.  Sales also registered a year-over-year increase of 3.3%. This is higher than 2015’s yearly gain of 2.3%.

Meanwhile, another report from trade group National Retail Federation, also released on Friday, showed that holiday sales had increased by 4% in November and December on a yearly basis. This is in line with official data which shows that, sales for the October-December period experienced a yearly increase of 4.1%.

Automobiles, Furniture Boost Numbers

Both these figures were driven upward by a substantial increase in automobile sales. Lucrative discounts have boosted auto sales with carmakers offering large discounts in order to push up passenger car purchases.  

Another trend visible last month as well as over the holiday sales season has been the shift toward shopping online. Over 2016, online retail purchases increased by 11% while department store sales declined by nearly 6%.

Of the 13 major retail categories, eight ended December with gains. Sales at motor vehicle and parts dealers increased by 2.4%. Meanwhile, furniture and home furnishing stores experienced a 0.5% increase in sales. Sales at sporting goods, hobby, book and music stores increased by 0.2%. 

Our Choices

Retailers have had a good 2016 and prospects for the current year look bright. The new administration’s policy measures are likely to boost growth, providing further purchasing power to the consumer.

At this point, adding select stocks from the sector to your portfolio looks like a smart option. However, picking winning stocks may be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

Rush Enterprises, Inc. RUSHA is a retailer of commercial vehicles. It also offers related services such as parts, body shop facilities and financing. 

Rush Enterprises has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 30.3% for the current year. Its earnings estimate for the current year has improved by 2.6% over the last 30 days. The stock has returned 78% over the last one year, outperforming the Zacks Automotive - Retail and Whole Sales  Market sector, which has gained 34.3% over the same period.

America's Car-Mart, Inc. CRMT operates automotive dealerships and is one of the largest automotive retailers in the U.S. focused exclusively on the Buy Here/Pay Here segment of the used car market.

America's Car-Mart has a VGM Score of B. The company has expected earnings growth of 81% for the current year. The stock has returned 106.1% over the last one year, outperforming the Zacks Automotive - Retail and Whole Sales  Market sector, which has gained 34.3% over the same period. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pier 1 Imports, Inc. PIR consists of a chain of retail stores operating under the names Pier 1 Imports and The Pier, selling a wide variety of furniture, decorative home furnishings, dining and kitchen goods, accessories and other specialty items for the home.

Pier 1 Imports has a Zacks Rank #2 and a VGM Score of A. Its earnings estimate for the current year has improved by 3.2% over the last 30 days. The stock has returned 101.7% over the last one year, outperforming the Zacks Retail - Home Furnishings  Market sector, which has lost 13.4% over the same period.

Masonite International Corp. DOOR is a designer, manufacturer and seller of interior and exterior doors on a global basis.

Masonite International has gained 15% over the last one year, underperforming the Zacks Furniture Market sector, which has gained 4.3% over the same period. However, it has a Zacks Rank #2 and a VGM Score of B. Its earnings estimate for the current year has improved by 1.2% over the last 30 days. This provides a good opportunity to buy the stock which remains valued below its market potential at this point.

Barnes & Noble, Inc. BKS is the leading U.S. retail bookseller as well as a prominent retailer of content and educational products.

Barnes & Noble has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 84.3% for the current year. The stock has returned 35.3% over the last one year, outperforming the Zacks Retail - Miscellaneous Market sector, which has gained 15.3% over the same period.

DICK's Sporting Goods, Inc. DKS operates as a full-line sporting goods retailer.

DICK's Sporting Goods has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 7.6% for the current year. The stock has returned 53.7% over the last three months, outperforming the Zacks Retail - Miscellaneous  Market sector, which has gained 15.3% over the same period.

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America's Car-Mart, Inc. (CRMT): Free Stock Analysis Report
 
Rush Enterprises, Inc. (RUSHA): Free Stock Analysis Report
 
Masonite International Corporation (DOOR): Free Stock Analysis Report
 
Pier 1 Imports, Inc. (PIR): Free Stock Analysis Report
 
Barnes & Noble, Inc. (BKS): Free Stock Analysis Report
 
Dick's Sporting Goods Inc (DKS): Free Stock Analysis Report
 
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