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Pick These 5 Stocks to Counter the Slump in Retail Sales

U.S. retail and food services sales in June declined 0.2%, following a revised reading of 0.1% decrease registered in May, as people curtailed their spending on clothes and spent less at gasoline stations, department stores and restaurants. This suggests that consumer spending, which plays a pivotal role in driving the economy, may have lost momentum.

As per the Commerce Department report, sales at clothing & clothing accessories stores declined 0.1%, while receipts at gasoline stations fell 1.3%. Sales at food & beverage stores dropped 0.4%. Department store sales decreased 0.7% and were down 3.9% from the prior-year period. Sales at non-store retailers, however, inched up 0.4% in June and increased 9.2% from the prior-year period.

Certainly, the second straight month of slump in retail sales overshadowed steady job additions and gradual wage acceleration. This also cast a doubt over the expected rebound in the economy, which at one end witnessed a rise in interest rate and U.S. factory activity in June, while on the other end saw oil prices lose ground and encountered political gridlock.

If the downward spiral in retail sales has put you in a spot of bother, we advise you to dismiss concerns about its impact on your portfolio and locate greener pastures.

Where to Look for the Right Stocks?

Although the Retail-Wholesale sector has not been a spectacular performer, it still holds promise, given some favorable economic indicators. Moreover, friendlier fiscal and regulatory policies from the current administration also bode well. The rebound in oil prices from all-time lows, improving labor market and gradual recovery in the housing market signal that the economy is on a recovery mode.

The economy added 222,000 jobs in June, while the unemployment rate was 4.4%. These factors are favorable for retailers and definitely play a crucial role in raising buyers’ confidence.

Here we have highlighted five Retail/Wholesale stocks with a favorable combination of a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a VGM Score of “A” or “B.” These stocks are backed by sound fundamentals, surging share price and a track record of better-than-expected results.

5 Prominent Picks

We suggest investing in Aaron's, Inc. AAN, an omni-channel provider of lease-purchase solutions, with a VGM Score of “A.” The company posted an average positive earnings surprise of 10.6% in the trailing four quarters. In the past six months, the stock has surged roughly 30.6% and outperformed the Zacks categorized Retail-Consumer Electronic industry, which advanced 26%. Moreover, it flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

You may also count on Red Robin Gourmet Burgers, Inc. RRGB, which has a long-term earnings growth rate of 10.3% and a VGM Score of “B.” This operator of casual-dining and fast-casual restaurants delivered an average positive earnings surprise of 17.3% in the trailing four quarters and carries a Zacks Rank #1. We note that in the past six months, the stock has advanced approximately 29.8%, while the Zacks categorized Retail-Food & Restaurants industry gained 13.7%.

Another stock worth considering is Best Buy Co., Inc. BBY, which has a long-term earnings growth rate of 11.8% and a VGM Score of “A.” This retailer of technology products, services, and solutions delivered an average positive earnings surprise of 33.8% in the trailing four quarters and sports a Zacks Rank #1. We note that in the past six months, the stock has advanced approximately 28.4%, while the Zacks categorized Retail-Consumer Electronic industry gained 26%.

The Home Depot, Inc. HD with a long-term earnings growth rate of 13% and a VGM Score of “B” is also a solid bet. This home improvement retailer delivered an average positive earnings surprise of 3.5% in the trailing four quarters and carries a Zacks Rank #2. We note that in the past six months, the stock has advanced approximately 13.7%, while the Zacks categorized Building Products – Retail/Wholesale industry has gained 9.8%.

You may also safely bet on Wal-Mart Stores, Inc. WMT, which operates as a chain of discount department stores, hypermarkets and grocery stores. The stock holds a Zacks Rank #2 and has a VGM Score of “B.” The company posted an average positive earnings surprise of 3% in the trailing four quarters and has a long-term earnings growth rate of 6.1%. In the past six months, the stock has increased 12.9%, while the Zacks categorized Retail-Supermarkets industry rose 7.4%.

These five stocks are not the end of the road and with the help of the Zacks Stock Screener and some permutation and combination, you can find out other stocks that have the potential to beat the market.

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Home Depot, Inc. (The) (HD): Free Stock Analysis Report
 
Aaron's, Inc. (AAN): Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY): Free Stock Analysis Report
 
Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
 
Red Robin Gourmet Burgers, Inc. (RRGB): Free Stock Analysis Report
 
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