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Retail Sales Increase in September: 5 Solid Stocks to Buy

Ritujay Ghosh
·5 min read

U.S. retail sales increased for the fifth straight month in September as Americans spent more on clothing, cars and eating out. Needless to say, the retail sector has finally started to bounce back after taking a massive hit during the peak of the pandemic. Overall, the third quarter has been good for the retail sector although it’s far from last year’s level.

However, the sale of electronic goods was somewhat down, which slowed the overall retail sales. Interestingly, motor vehicle sales will be one of the highpoints of September’s retail sales. Also, e-commerce sales saw a rise in September. Although coronavirus-related restrictions have eased, and businesses and stores have started reopening, most people are still shopping online, thereby boosting sales.

Retail Sales Jump Despite Challenges

U.S. retail sales jumped 1.9% in September, the Commerce Department said on Oct 16. This indicates that the country's biggest economic driver is still healthy. Excluding autos, the gain amounted to 1.5%, which is also better than the 0.4% estimate.

Consumer spending makes up two-thirds of all U.S. economic activity and is watched closely to gauge the country's economic health. Friday's retail sales report covers only about a third of overall consumer spending. Services such as haircuts and hotel stays are not included in the report.

Spending on Clothing, Eating Out Increases

Clothing and accessories led the advances in September, rising 11%, while sporting goods, music and books jumped 5.7%. Electronics and appliances was the only major section that was negative, dropping 1.6% from the August levels.

Consumers drive about two-thirds of economic activity and they retrenched sharply in the second quarter, which saw GDP fall by an unprecedented 31.4%. However, economists expect that number to turn around when third-quarter growth is announced at the end of the month, with the Atlanta Fed’s GDPNow tracker pointing to a 35.2% increase.

Besides, online and mail-order retail sales rose 0.5%. Furniture store sales gained 0.5%. Sales at sporting goods, hobby, musical instrument and book stores rebounded 5.7%. These categories notched big year-on-year increases in September, which economists said showed the uneven impact of the recession.

Our Choices

The jump in retail sales in September once again signals a steady recovery. Retail sales are about 2% higher now than the pre-pandemic levels in February, but they would almost certainly be higher had there been no viral outbreak. With more stores likely to open in the coming weeks, it is expected that people will once again go shopping. However, e-commerce will continue to play a dominant role. Given this situation, it might be prudent to invest in retail stocks that also have a strong online presence.

Walmart Inc. WMT has evolved from just being a traditional brick-and-mortar retailer into an omnichannel player. Walmart’s offerings include almost everything from grocery to cosmetics, electronics to stationery, and home furnishings to health and wellness products among others.

The company’s expected earnings growth rate for the current year is 8.1%. The Zacks Consensus Estimate for current-year earnings has improved 7.5% over the past 60 days. Walmart carries a Zacks Rank #2 (Buy).

Target Corporation TGT has evolved from just being a pure brick & mortar retailer to an omni-channel entity. The company has been investing in technologies, improving websites and mobile apps, and modernizing the supply chain to keep pace with the changing retail landscape and better compete with pure e-commerce players.

The company’s expected earnings growth rate for the current year is 12.4%. The Zacks Consensus Estimate for current-year earnings has improved 39.4% over the past 60 days. Target sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Kroger Co. KR operates supermarkets, multi-department stores, marketplace stores and price impact warehouse stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; and multi-department stores provide apparel, home fashion and furnishings, outdoor living, electronics, automotive products, and toys.

The company’s expected earnings growth rate for the current year is 49.1%. The Zacks Consensus Estimate for current-year earnings has improved 15.5% over the past 60 days. Kroger has a Zacks Rank #2.

Tapestry, Inc. TPR is the designer and marketer of fine accessories and gifts for women and men in the United States and internationally. The company offers lifestyle products, which include handbags, women’s and men’s accessories, footwear, jewelry, seasonal apparel collections, sunwear, travel bags, fragrance and watches. 

The company’s expected earnings growth rate for the current year is 91.8%. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the past 60 days. Tapestry has a Zacks Rank #1.

DICKS Sporting Goods, Inc. DKS operates as a major omni-channel sporting goods retailer, offering athletic shoes, apparel, accessories and a broad selection of outdoor and athletic equipment for team sports, fitness, camping, fishing, tennis, golf, water sports, etc.

The company’s expected earnings growth rate for the current year is 3%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. Dicks Sporting sports a Zacks Rank #1.

Zacks’ Single Best Pick to Double

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