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Bet on These 5 Retail Growth Stocks for a Thriving 2018

It’s the first trading day of 2018 and wolves of Wall Street are back to hunt for the best stocks. And if morning shows the day, today’s session might show the direction that the market will choose for itself this year. Barring a few hiccups, the year 2017 turned out to be a great one for investors, and undoubtedly there is enough steam in the market to carry the momentum in 2018.

A favorable economic backdrop, major reforms and increase in infrastructure outlays are likely to spur domestic investments and stimulate growth in 2018. If the government ably channelizes the policies along with implementing pro-investors and pro-corporate reforms, Wall Street would continue to be ruled by bulls. We noted that major indices like the S&P 500, Dow Jones Industrial Average and NASDAQ have gained 18.4%, 24.3% and 27.2%, respectively, in a year.

The market in 2017 became witness to some major events, news and reforms — the Fed raised benchmark interest rate thrice this year, unemployment rate reached its 17-year low rate, economy grew at a rate of 3% or more for two successive quarters, the new tax code finally passed, and corporates reported sturdy earnings results. Certainly, the year 2018 is likely to turn out to be another eventful one with primary focus on the impact of new tax structure over corporate profitability.

The exact earnings impact of the tax legislation will gradually become clear but preliminary estimates suggest a material earnings boost. In fact, we expect average S&P 500 earnings in 2018 to rise by an impressive 11.7% year over year. Well, all of these are working in tandem for investors and calls for investing in growth stocks to reap the benefits of current bullish trend.

Retail Holds the Baton

Among the 16 Zacks categorized sectors, we are focusing on Retail-Wholesale, which currently occupies the top 31% (5 out of 16) position in the list. The sector has certainly been facing the brunt of heightened online competition, lower footfall and changing consumer spending patterns but of late the tables are turning in favor of the retailers. Stocks once bogged down by tough environment are now suddenly climbing the charts. The sector has gained 30% in a year and has comfortably outperformed the S&P 500.

The recent rebound in oil prices, encouraging employment picture, along with a gradual improvement in the manufacturing sector and housing market highlights the underlying strength of the economy. Amid such a backdrop, the retail sector presents itself as a lucrative investment hub. These factors are playing a crucial role in raising buyers’ confidence, and we expect this positive sentiment to translate into higher consumer spending.

We have identified five Retail-Wholesale stocks based on a favorable combination of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of A or B. These stocks are backed by sound fundamentals, surging share price and a track record of better-than-expected results. Not only this, these stocks have outperformed their respective industries.

5 Prominent Picks

RH RH, a home furnishing retailer, is a lucrative option. The stock has a long-term earnings growth rate of 34.4% and a Growth Score of A. We note that in a year, the stock has soared more than 170%, while the industry has advanced 9.2%. It has delivered an average positive earnings surprise of 17% in the trailing four quarters. The company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

You may also consider PetMed Express, Inc. PETS with a long-term earnings growth rate of 10% and a Growth Score of A. In a year, the stock has surged roughly 94.2% and outperformed the industry, which grew 57.7%. The operator of pet pharmacy in the United States delivered an average positive earnings surprise of 23.5% in the trailing four quarters. It sports a Zacks Rank #1.

We also suggest investing in Alibaba Group Holding Limited BABA with a long-term earnings growth rate of 30.7% and a Growth Score of B. In a year, this Zacks Rank #2 stock has surged roughly 94.6% and outperformed the industry, which grew 57.7%. This e-commerce, retail and technology conglomerate delivered an average positive earnings surprise of 15% in the preceding four quarters.

Investors can count on The Children's Place, Inc. PLCE with a Growth Score of B and a long-term earnings growth rate of 9%. In a year, this Zacks Rank #2 stock has advanced roughly 44%, compared with the industry’s decline of 1%. This children's specialty apparel retailer delivered an average positive earnings surprise of 14% in the preceding four quarters.

Burlington Stores, Inc. BURL, a retailer of branded apparel products, is also a solid bet with a Zacks Rank #2 and a Growth Score of A. The company posted an average positive earnings surprise of 15.2% in the trailing four quarters and has a long-term earnings growth rate of 17.5%. The stock has surged 45.2% in a year and comfortably outperformed the industry’s increase of 12.1%.

Zacks Editor-in-Chief Goes "All In" on This Stock

Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.

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PetMed Express, Inc. (PETS): Free Stock Analysis Report
 
Alibaba Group Holding Limited (BABA): Free Stock Analysis Report
 
Children's Place, Inc. (The) (PLCE): Free Stock Analysis Report
 
Burlington Stores, Inc. (BURL): Free Stock Analysis Report
 
Restoration Hardware Holdings Inc. (RH): Free Stock Analysis Report
 
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