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Costco & These 4 Retail Stocks Are Hot Investment Picks

Zacks Equity Research

In the changing retail landscape, Costco Wholesale Corporation COST has been able to create a niche for itself on the back of growth strategies, better price management, strong membership trends and increasing penetration of e-commerce business. The company continues to be one of the dominant warehouse retailers based on the breadth and quality of merchandise offered. In fact, its strategy of selling products at heavily discounted prices has helped it to remain on growth track.

These factors collectively have aided the company in sustaining impressive comparable sales run. Notably, comps for the month of March rose 5.7% following an increase of 3.5% in February and 5.2% in January. Comps for March reflect an increase of 6.9% in the United States, 3.8% in Canada and 1.6% in Other International locations, respectively. Meanwhile, net sales improved 7.4% to $13.87 billion in the month of March, following an increase of 5% and 8% in February and January, respectively.

Buoyed by above-mentioned reasons, shares of this warehouse retailer has surged 20.5% so far this year, comfortably outpacing the Retail & Wholesale Sector as well as S&P 500 Index, which advanced 17.8% and 15.5%, respectively. Currently, this Zacks Rank #2 (Buy) stock is trading close to its 52-week high of $247.25, and there are valid reasons to believe that Costco with long-term earnings growth rate of 9% could scale new highs.

Why the Retail Sector?

Well like Costco there are other prominent retailers that are riding on the wave of favorable consumer environment and strategic endeavors. The retailers are making prudent investments, focusing on cost savings, enhancing omni-channel capacities, introducing new brands, refurbishing stores and expanding same-day delivery options.

It goes without saying that the sector’s prospects are closely tied to the purchasing power of consumers. In fact, strengthening labor market and rising disposable income are forming a perfect base for higher consumer spending. This is quite evident from March’s retail sales scorecard.

Per the Commerce Department, U.S. retail and food services sales in March rose 1.6% to $514.1 billion, as spending on autos, gas stations, apparel stores and home furnishing outlets surged. This marks a significant gain since September 2017 and represents a rebound from February’s decline of 0.2%. Retail sales increased 3.6% from March 2018.

4 Prominent Picks

Definitely, the Retail & Wholesale space seems to be faring better when compared with a host of other sectors, at least in terms of earnings and revenues. This is clearly visible from the picture unfolding for the first quarter of 2019. Per the latest Earnings Preview, the sector is likely to register top and bottom-line growth of 7.3% and 2.5%, respectively. It is to be noted that while total S&P 500 revenues are anticipated to improve 4.6%, earnings are expected to decline 3.2%.

Here we have highlighted four Retail-Wholesale stocks with a favorable combination 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.

America's Car-Mart, Inc. CRMT, an automotive retailer, is a solid bet with a long-term earnings growth rate of 18.9% and a VGM Score of B. This Zacks Rank #1 company has delivered an average positive earnings surprise of 42.2% in the trailing four quarters. Moreover, the stock has surged approximately 33.9% so far in the year.

AutoZone, Inc. AZO, which retails and distributes automotive replacement parts and accessories, 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 12%. The stock has gained 25% so far in the year. It has an average positive earnings surprise of 8.1% in the trailing four quarters.

Investors can also count on Best Buy Co., Inc. BBY, a retailer of technology products, services, and solutions. This Zacks Rank #2 company has a long-term earnings growth rate of 8.8% and a VGM Score of A. The company has delivered an average positive earnings surprise of 8.6% in the trailing four quarters and advanced about 39% year to date.

You can also add Target Corporation TGT to your portfolio. The company’s shares have surged about 24.3% year to date. This general merchandise retailer has a VGM Score of A and a long-term earnings growth rate of 6.3%. The stock carries a Zacks Rank #2.

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