U.S. Markets closed

Look Beyond December Retail Slump, 4 ETF Areas to Rebound

Sanghamitra Saha

U.S. retail sales registered a 1.2% sequential decline in December. The reading fell shy of analysts’ expectations of a 0.2% increase. It also marked the steepest decline in retail sales since September 2009.

Barring automobiles, gasoline, building materials and food services’ retail sales fell 1.7% in December after an increase of 1% in November. On a year-over-year basis, retail sales increased 2.3% in December compared with a 4.1% rise in the prior month.

As many as 11 out of the 13 major retail categories exhibited a decline in sales in December from the previous month, as per tradingeconomics. While most of the key categories retreated, investors must have all reasons to doubt the economic health.

But probably that is not the case in reality. Many of the underperforming segments have strong long-term potential. Below we highlight a few of such areas.

Natural Gas   

Receipts at gasoline stations dropped 5.1% (versus 4.4% of decline in November). This was the biggest slump since February 2016 thanks to cheaper gasoline prices.

However, investors should note that Gasoline prices are on the rise now. This was because “U.S. Gulf of Mexico refineries continued to be disproportionately affected by crude oil supplies from Venezuela” amid U.S. sanctions. Plus, there are also deep supply cuts from OPEC, Russia and Canada.

United States Gasoline UGA, which seeks to track in percentage terms the movements of gasoline prices, in fact jumped 3.1% on Feb 14 (read: Oil Jumps: 4 ETFs to Benefit & 4 to Suffer).

Online Stores

Online and mail-order retail sales declined 3.9%, marking the biggest drop since November 2008, after a 2.8% uptick in the previous month.

This data could be fleeing as the appeal of online retailing has been high. A vivid change has been taking place in the retail shopping scenario globally, from brick-and-mortar stores to the digital format. Notably, e-commerce sales surged 18.3% year over year between Nov 1 and Dec 19 (read: Holiday Sales Strongest in Six Years: ETFs Set to Surge).

Online sales at department stores, electronics and jewelry were also robust, rising between 7-10%. Meanwhile, in-store sales grew 4.3% in the same time period. While developed markets adopted this change quite earlier, emerging markets have been witnessing fast penetration of late. So, don’t shy away from the likes of Amplify Online Retail ETF IBUY and Amplify International Online Retail ETF XBUY (read: Explore Online Retailing Internationally With This New ETF).

Broad-Based Retail

There was a slump in almost every sphere in December. Sales at hobby, musical instrument & book stores fell 4.9% (versus 1.4% drop-off in November), the biggest drop since September 2008. Miscellaneous store retailers succumbed to 4.1% lower sales (versus 4% decline in November). Spending also fell at furniture & home furniture stores (down 1.3% vs 0.5% of gains).

But with the jobs market growing and inflation not very high, the retail backdrop should see steady sales over the medium term. SPDR S&P Retail ETF XRT has a Zacks Rank #2 (Buy).

Electronics & Appliance Stores

This segment slipped 0.1% in December, almost in line with November. But things should improve ahead. “Global demand for semiconductors reached a new high in 2018, with annual sales hitting a high-water mark and total units shipped topping 1 trillion for the first time," perJohn Neuffer, SIA president and CEO, quoted on digitimes.com.

Semiconductors are the key ingredients for electronics and appliances. So, if demand for chips remains strong, sales would gradually pick up for electronic products. Agreed, “market growth slowed during the second half of 2018, but the long-term outlook remains strong."iShares PHLX Semiconductor ETF SOXX is thus a good pick (read: Sector ETFs & Stocks to Rally on US-Sino Trade Hopes).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
US Commodity Funds United States Gasoline Fund LP (UGA): ETF Research Reports
 
SPDR S&P Retail ETF (XRT): ETF Research Reports
 
Amplify Online Retail ETF (IBUY): ETF Research Reports
 
iShares PHLX Semiconductor ETF (SOXX): ETF Research Reports
 
Amplify International Online Retail ETF (XBUY): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report