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Retail Sales Witness Largest Increase in 18 Months: 5 Picks

Swarup Gupta

In March, retail sales rebounded strongly from the decline suffered in the previous month. This latest release from the U.S. Census Bureau added to the series of economic reports, which indicate that the economy is gathering steam after a soft start to the year. Gains were led by autos, gas stations, apparel stores and home furnishing outlets.

Meanwhile, jobless claims for the week ended Apr 13 plunged to their lowest level since September 1969, defying most expectations. It is quite clear that a robust job market and a pickup in wage growth are fueling a rise in consumer spending. This is why it makes sense to invest in those categories that are the primary catalysts for the rebound in retail sales.

Spike in Gas Prices Boost Receipts at Gas Stations

Retail sales for March increased by 1.6%, the sharpest gain registered since September 2017. This was significantly higher than the consensus estimate of an increase of 0.9% and represents a rebound from February’s decline of 0.2%. Gains for the month were led by gas stations, where receipts climbed by 3.5%.

Spending at gas stations increased after the average price of gas climbed 10% across the country in March to $2.62 a gallon, per government data. These are the highest prices experienced since last November.

Autos, Furniture, Apparel Lead Gains

Other major gainers include motor vehicles and parts dealers. Sales of automobiles and related parts increased by 3.1%, the highest gain registered so far this year. This was the primary driver of the headline number since auto receipts make up nearly 20% of all retail sales.

Other major gainers for the month were furniture and home furnishing stores, and clothing and accessories stores, sales at which increased by 1.7% and 2%, respectively. While department store sales remained flat, sales at nonstore retailers, which include online retailers, increased by 1.2%.

Robust Labor Market, Wage Gains Fuel Spending

Meanwhile, a report from the Department of Labor revealed that jobless claims for the week ended Apr 13 declined by 5,000 to a seasonally adjusted level of 192,000. This is the lowest level recorded in nearly 50 years and a drastic departure from the consensus estimate for an increase to 206,000. 

The metric has now moved lower for five successive weeks. This gives credence to the view that a robust labor market is boosting wage growth, which in turn is raising American purchasing power.

In March, average hourly earnings increased 4 cents to $27.70. The year-over-year increase in earnings declined from 3.4% to 3.2%. But even then, wages continue to increase at their fastest pace in a decade. (Read: 5 Top Business Services Stocks to Buy as Job Gains Rebound)

Our Choices

March’s retail sales provide fresh evidence that the U.S. economy is gathering momentum as the year progresses. Category-wide gains testify to a significant improvement in economic conditions.

Meanwhile, the recent plunge in jobless claims indicates that a robust labor market and jobless claims are boosting purchasing power. Investing in retail categories, which led gains in March, looks prudent. However, picking winning stocks may prove to 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.

Foot Locker, Inc. FL is a retailer of athletically inspired shoes and apparel.

Foot Locker has a Zacks Rank #1 (Strong Buy) and VGM Score of A. The company’s expected earnings growth for the current year is 10.4%.

Abercrombie & Fitch Co. ANF is a specialty retailer focusing on apparel and accessories. 

Abercrombie & Fitch has a VGM Score of B. The company has expected earnings growth of 20.9% for the current year and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

AutoZone, Inc. AZO is a retailer and distributor of automotive replacement parts.

AutoZone has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 22.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.1% over the past 30 days.

CarMax, Inc. KMX operates as a retailer of used cars.  

CarMax has a Zacks Rank #2 and VGM Score of B. The company’s expected earnings growth for the current year is 7.1%. The company has expected earnings growth of 1.1% for the current year.

Williams-Sonoma, Inc. WSM is a specialty retailer of high-quality products for the home.

Williams-Sonoma has a Zacks Rank #2 and VGM Score of A. The company has expected earnings growth of 2.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.4% over the past 30 days.

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CarMax, Inc. (KMX) : Free Stock Analysis Report
 
AutoZone, Inc. (AZO) : Free Stock Analysis Report
 
Abercrombie & Fitch Company (ANF) : Free Stock Analysis Report
 
Foot Locker, Inc. (FL) : Free Stock Analysis Report
 
Williams-Sonoma, Inc. (WSM) : Free Stock Analysis Report
 
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