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Forget Nordstrom, Buy These Fit-as-Fiddle Retail Stocks

We always try to strike gold when it comes to selecting stocks. However, global economic headwinds, yet-to-recover Chinese economy, muted growth in the Euro zone and fluctuating commodity prices are leaving us perplexed about which stocks to bank on. The U.S. stock market also displayed a sluggish performance at the start of the year owing to fears of overseas turmoil and plunging oil prices. Although the market has recouped much of the losses, it is yet to breathe a sigh of relief.

Amid such a scenario, it is better to get rid of stocks that have been witnessing falling share price and estimates, before they can hurt your return. Nordstrom Inc. JWN, a fashion specialty retailer of apparel, shoes, cosmetics, and accessories is one such stock that has been witnessing a downtrend in the Zacks Consensus Estimate. Moreover, the company currently carries a Zacks Rank #5 (Strong Sell). This implies that analysts covering the stock are not convinced about Nordstrom’s performance in the near future.

So, why are investors steering clear of Nordstrom? Shares of the company have nosedived roughly 35% in the past one-year period, and the stock touched its 52-week low of $44.49 on Jan 15, 2016. It hit a 52-week high over 8 months ago on Jul 16, 2015.

Nordstrom continued with its dismal run, posting the second straight quarter of negative earnings surprise of 4.1% in fourth-quarter fiscal 2015, after an earnings miss of 19.7% in the preceding quarter. In the trailing four quarters, the company underperformed the Zacks Consensus Estimate by an average of 6.9%. Management anticipates the company’s bottom line to nosedive approximately 30% in the first half of fiscal 2016. The company projects fiscal 2016 earnings per share in the range of $3.10–$3.35.

Following Nordstrom’s discouraging performance and dull outlook, the Zacks Consensus Estimate witnessed a downtrend. Over the past 60 days, the Zacks Consensus Estimate of $3.18 and $3.52 for fiscal 2016 and fiscal 2017, respectively, dropped 27 cents.

From the above analysis it is quite apparent that Nordstrom may not be the right choice for your portfolio at least in the near term. So for the time being, you can shift your focus to better-ranked retail stocks that are backed by sound Zacks Consensus Estimate revision, a VGM Score of “A” and sturdy fundamentals.

4 Retail Picks

American Eagle Outfitters, Inc. AEO, retailer of apparel and accessories, is a solid bet, with a Zacks Rank #1 (Strong Buy) and a VGM Score of “A”. The Pittsburgh, PA-based company delivered an average positive earnings surprise of 15.8% over the trailing four quarters, and has a long-term earnings growth rate of 10%. The company is expected to witness earnings growth of 12.8% in fiscal 2016 and 9.3% in fiscal 2017. The Zacks Consensus Estimate too has been trending up over the past 60 days.

We also suggest investing in Express Inc. EXPR, with a Zacks Rank #1, long-term earnings growth rate of 15% and a VGM Score of “A”. This Columbus, OH-based specialty apparel and accessories retailer delivered an average positive earnings surprise of 33.5% over the trailing four quarters. It is expected to witness earnings growth of 16.6% in fiscal 2016 and 9.1% in fiscal 2017. The Zacks Consensus Estimate too has been on the rise over the past 60 days.

Investors can also count on Darden Restaurants, Inc. DRI, operator of full-service restaurants that flaunts a Zacks Rank #1 with a long-term earnings growth rate of 14.2%. This Orlando, FL-based company delivered an average positive earnings surprise of 15.7% over the trailing four quarters and has a VGM Score of “A”. The company is expected to witness earnings growth of 33.5% in fiscal 2016 and 12.8% in fiscal 2017. The Zacks Consensus Estimate too has trended upward over the past 7 days.

Last but not the least is Burlington Stores, Inc. BURL, with a Zacks Rank #2 (Buy), long-term earnings growth rate of 16.3% and a VGM Score of “A”. This Burlington, NJ-based company, which operates as a national chain of off-price retail stores, delivered an average positive earnings surprise of 19.1% over the trailing four quarters. It is expected to witness solid earnings growth of 18% in fiscal 2016 and 17.7% in fiscal 2017. The Zacks Consensus Estimate too has been on the rise over the past 60 days.

Final Verdict

Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 or #2, which encompasses its strong fundamentals, promises favorable price movement and highlights analysts’ constructive view on the same via positive estimate revisions. A sturdy portfolio always gives higher returns.

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AMER EAGLE OUTF (AEO): Free Stock Analysis Report
 
NORDSTROM INC (JWN): Free Stock Analysis Report
 
EXPRESS INC (EXPR): Free Stock Analysis Report
 
DARDEN RESTRNT (DRI): Free Stock Analysis Report
 
BURLINGTON STRS (BURL): Free Stock Analysis Report
 
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