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Americans Way More Confident Now: 5 Retail Stocks in Focus

After back-to-back monthly declines, U.S. consumer confidence — a key determinant of the economy’s health — picked up sharply in September and reached the highest level since the coronavirus outbreak. However, the level remained below the pre-pandemic mark. Consumer confidence was shattered earlier this year as the coronavirus-induced crisis brought the economy to a standstill, taking a toll on employment and household income. Imposition of lockdowns severely hurt the job market with millions out of work.

Nonetheless, easing restrictions and gradual pick-up in economic activities have ushered a sense of confidence with more and more people returning to their work place and the unemployment rate showing signs of improvement. However, some market pundits have cautioned that rise in coronavirus cases with no sure shot treatment, uncertainties surrounding the new stimulus bill and a contentious presidential election could weigh on consumer sentiment.

Consumer Confidence Springs Back

Americans are way more confident now about the labor market, income prospects and business conditions. Per Conference Board data, the Consumer Confidence Index rose to 101.8 in September from an upwardly revised reading of 86.3 in August.

Lynn Franco, Senior Director of Economic Indicators at The Conference Board said “A more favorable view of current business and labor market conditions, coupled with renewed optimism about the short-term outlook, helped spur this month’s rebound in confidence. Consumers also expressed greater optimism about their short-term financial prospects, which may help keep spending from slowing further in the months ahead.”

Certainly, an upbeat sentiment is likely to translate into increased consumer spending, which accounts for more than two-thirds of U.S. economic activity. Any uptick in consumer spending is always a welcome news for retailers, and more so when they are entering the busiest part of the year — the holiday season. Per AlixPartners, the global consulting firm, nearly half of US consumers are likely to kick-start their shopping for the festive season before Halloween.

The consulting firm envisions an increase of 1-2.6% in retail sales on a year-over-year basis during the newly defined “October-through-December” holiday season. In the last year, sales amounted to $1.132 trillion during the aforementioned period. According to the poll done by AlixPartners, apparel, toys, footwear, and electronics & video games emerged as the top retail categories where consumers intend to spend the same or more this festive season.

5 Prominent Picks

All said, here we have shortlisted five stocks 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.

You may invest in Best Buy Co., Inc. BBY, which has a Zacks Rank #1 and a VGM Score of A. The provider of technology products, services and solutions has a trailing four-quarter earnings surprise of 33.5%, on average. It has a long-term earnings growth rate of 6.8%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates growth of 3.8% and 17.3%, respectively, from the prior-year period.

The Kroger Co. KR is worth betting on. The stock has a Zacks Rank #2 and a VGM Score of A. This operator of supermarkets and multi-department stores has a trailing four-quarter earnings surprise of 13%, on average. It has a long-term earnings growth rate of 6.2%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates an improvement of 8.2% and 46.8%, respectively, from the year-ago period.

Investors can count on Walmart Inc. WMT, the operator of supermarkets, warehouse clubs, cash and carry stores and discount stores. The company has a trailing four-quarter earnings surprise of 9.5%, on average. It has a long-term earnings growth rate of 5.6%. The stock has a Zacks Rank #2 and a VGM Score of A. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings suggests growth of 5.2% and 8.5%, respectively, from the year-ago period.

We also suggest investing in Lowe's Companies, Inc. LOW. The stock has a Zacks Rank #2 and a VGM Score of A. This home improvement retailer has a trailing four-quarter earnings surprise of 17.2%, on average. It has a long-term earnings growth rate of 16.6%. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates an improvement of 17.9% and 48.3%, respectively, from the year-ago period.

Domino's Pizza, Inc. DPZ with a long-term earnings growth rate of 13.9% is also a solid bet. This pizza company has a trailing four-quarter earnings surprise of 18.6%, on average. The stock has a Zacks Rank #2 and a VGM Score of B. Moreover, the Zacks Consensus Estimate for its current financial year sales and earnings indicates growth of 12.4% and 34.2%, respectively, from the year-ago period.

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Dominos Pizza Inc (DPZ) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
 
Lowes Companies, Inc. (LOW) : Free Stock Analysis Report
 
The Kroger Co. (KR) : Free Stock Analysis Report
 
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