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Add Target & These 4 Retail Stocks for Superb Returns

Sumit Singh

In the changing retail landscape, Target Corporation TGT has been able to create a niche for itself on the back of growth strategies, better price management and strides taken in delivery business. The company’s initiatives such as the development of omni-channel capacities, diversification and localization of assortments along with emphasis on flexible format stores and expansion of same-day delivery options are playing a crucial role in generating higher sales.

Robust traffic, favorable store comps and surge in comparable digital sales are clearly aiding results. Comparable sales rose 4.8% in the first quarter of fiscal 2019. Meanwhile, comparable digital channel sales surged 42% and added 2.1 percentage points to comparable sales. Management envisions both second quarter and fiscal 2019 comparable sales to increase in low-to-mid-single digit range.

The company has rolled out Target Restock program that enable customers to restock their shipping box with essential items online and get them delivered at their doorstep by the next business day for a nominal charge. Further, the company made significant headway in the same-day delivery race by acquiring Internet-based grocery delivery service, Shipt, to provide same-day delivery of groceries, essentials, home, electronics, toys and other products.

Shipt operates in more than 1,500 outlets in more than 200 markets. Per media reports, online shoppers can now get items delivered on the same day by paying a fee of $9.99 per order.

Buoyed by above-mentioned reasons, shares of this general merchandise retailer has surged 31.2% so far this year, comfortably outpacing the Retail-Wholesale Sector as well as S&P 500 Index, which advanced 17.6% and 16.4%, respectively. Currently, this Zacks Rank #2 (Buy) stock is trading close to its 52-week high of $90.39. There is a likelihood that Target with a long-term earnings growth rate of 7.1% can attain new highs.

Why the Retail Sector?

Well like Target there are other prominent retailers that are riding on the wave of favorable consumer environment and strategic endeavors. In fact, strengthening labor market, rising disposable income and an upbeat consumer environment with confidence index reaching a six-month high in May are working in favor of the sector. Further, any rate cut will ramp up investment activities and reinforce consumer spending.

We note that consumer spending — one of the pivotal factors driving the economy — has picked up in recent months. This is evident from an uptick of 0.5% in retail sales during the month of May, following an upwardly revised reading of 0.3% gain in April. Clearly, this dissipates the fear of economy losing steam to an extent.

For obvious reasons, retailers are the end gainers. So, picking up stocks from the space will be a prudent move. Here are four stocks you can count upon. We have shortlisted them on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

4 Prominent Picks

Hibbett Sports, Inc. HIBB, a retailer of athletic-inspired fashion products, is a solid bet with a long-term earnings growth rate of 6.5% and a VGM Score of A. This Zacks Rank #1 company has delivered positive earnings surprises in the last two reported quarters. Moreover, the stock has surged approximately 35.5% so far in the year.

Aaron's, Inc. AAN, which operates as an omni-channel provider of lease-purchase solutions, is a solid pick with a Zacks Rank #2 and a VGM Score of A. The stock has a long-term earnings growth rate of 15%. The stock has gained 46.4% so far in the year. It has an average positive earnings surprise of 4.4% in the trailing four quarters.

Investors can also count on Zumiez Inc. ZUMZ, a specialty retailer of apparel, footwear, accessories, and hardgoods. This Zacks Rank #2 company has a long-term earnings growth rate of 13.5% and a VGM Score of B. The company has delivered an average positive earnings surprise of 46.3% in the trailing four quarters. Shares of the company advanced about 32.4% year to date.

You can also add Starbucks Corporation SBUX to your portfolio. The company’s shares have surged about 29.8% year to date. This retailer of specialty coffee has a VGM Score of A and a long-term earnings growth rate of 12.8%. This Zacks Rank #2 stock has an average positive earnings surprise of 7.7% in the trailing four quarters.

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Aaron's, Inc. (AAN) : Free Stock Analysis Report
 
Zumiez Inc. (ZUMZ) : Free Stock Analysis Report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
Starbucks Corporation (SBUX) : Free Stock Analysis Report
 
Hibbett Sports, Inc. (HIBB) : Free Stock Analysis Report
 
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