4 Retail Stocks to Buy on Renewed Hopes of Economic Recovery

The retail sector has been one of the worst hit by the coronavirus pandemic. Now, with stores, which remained closed for almost 10 weeks, finally opening, retail sales are improving again as more people are stepping out of their homes. This led to a surprise bounce in retail sales in May.

Although a spike in new cases has once again raised fears in millions, it is quite likely that the Fed won’t go for another lockdown given that the focus is on getting the economy back in shape. Consumers too have somewhat adjusted to the new lifestyle. Also, according to latest data, both consumer confidence and consumer spending jumped in May and June, respectively, indicating that the worst maybe is over. So it proves again that retailers, who went through a bad time over the last couple of months, can breathe easy now.

Consumer Confidence, Consumer Spending Soar

Consumer confidence rose to a three-month high of 98.1 in June from a revised 85.9 in May, the Conference Board said earlier this week. The index had almost neared a 20-year high of 132.6 in February before the pandemic shut down swaths of the economy. It had plummeted to as low as 85.7 in April.

Another gauge that assesses how Americans view the next six months — the so-called future expectations index — climbed to 106 from 97.6, just slightly below where it was before the virus spread. This is an indication that people are confident that the virus will eventually ease out and things will once again return to normal. This definitely is a good sign for businesses that had been feeling the heat of the coronavirus pandemic.

Also, consumer spending increased in May. Personal consumption expenditures — the value of goods and services purchased by or for people — grew 8.2% in May from April, marking the metric's first positive result since January. Last month's rebound in consumer spending followed record spending drops of 6.6% in March and 12.6% in April, when the pandemic shuttered almost all businesses.

Retail Sales Showing Signs of Recovery

According to the last-released data, U.S. retail sales jumped a record 17.7% from April to May, topping the record 6.7% rise witnessed in October 2001, a month after the 9/11 terrorist attacks. Retail sales alone soared 16.8% from April, more than double the estimated 8%. Clothing and accessories stores reported the biggest percentage gain of 188% while sporting goods, hobby, musical instruments and book stores saw an 88.2% surge.

One of the biggest jumps was witnessed in food sales. Food services and drinking places saw a 29.1% rebound in May after being locked down for almost two months. Although retail sales have taken a beating following the pandemic, e-commerce came to rescue. Online sales jumped a sizable 30.8% from a year ago.

Ever since the virus outbreak, online orders and delivery services have gained traction. U.S. online grocery sales grew 22% in 2019 and, propelled by high demand from the nationwide COVID-19 lockdowns, stand to surge about 40% this year, according to the Coresight Research U.S. Online Grocery Survey 2020.

Our Choices

The worst may be over and retailers may start seeing customers walking into stores again. It thus makes this an opportune time to invest in retail stocks.

Sportsman's Warehouse Holdings, Inc. SPWH is an outdoor sporting goods retailer. Its stores offer camping products, fishing products, and hunting and shooting products. The company's stores also provide clothing products, footwear products and optics, electronics and accessories.

The company’s expected earnings growth rate for the current year is 68.1%. The Zacks Consensus Estimate for current-year earnings has improved 25.4% over the past 30 days. Sportsman's Warehouse has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Big Lots, Inc. BIG along with its fully owned subsidiaries is a broad-line closeout retailer in the United States. The company offers products under various merchandising categories, which include food, consumables, furniture, seasonal, soft home, hard home, electronics and toys & accessories.

The company’s expected earnings growth rate for the current year is 66.2%. The Zacks Consensus Estimate for current-year earnings has improved 107.5% over the past 30 days. Big Lots sports a Zacks Rank #1.

Dollar General Corporation DG is one of the largest discount retailers in the United States. The company trades in low priced merchandise typically $10 or less. It offers a wider selection of merchandise, including consumable items, seasonal items, home products and apparel.

The company’s expected earnings growth rate for the current year is 31.4%. The Zacks Consensus Estimate for current-year earnings has improved 18.2% over the past 30 days. Dollar General carries a Zacks Rank #1.

Xcel Brands, Inc XELB operates as a brand management company. It is focused on the acquisition, design, licensing, marketing and retail sales of consumer brands including apparel, footwear and sporting goods. Xcel Brands owns and manages the Isaac Mizrahi and Judith Ripka brands.

The company’s expected earnings growth rate for the current year is 8%. Its shares have advanced 54.7% in the past three months. Xcel Brands has a Zacks Rank #2.

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