Well one simply can’t ignore concerns related to trade war, falling crude prices, sluggish business spending and other geopolitical issues that have been fueling apprehensions regarding the economy slowing down. But for now, an uptick in June retail sales have somewhat alleviated that fear. This was the fourth straight increase and also underscored a healthy consumer spending environment in the second quarter.
Americans continued their shopping spree — purchasing motor vehicles and buying furniture, electronics and other goods — supported by strengthening labor market and rising disposable income. Certainly, consumer spending — one of the pivotal factors driving the economy — is likely to remain strong. This is evident from the drop in the number of Americans claiming unemployment benefits that fell to three-month low in the last week.
Market pundits believe that the economy is not in a fragile state considering the June retail sales data. But this may not have much impact on the Fed’s likely decision over a rate cut. Lowering of interest rate will ramp up investment activities and reinforce consumer spending. They also highlighted that the pace of growth in the second quarter of 2019 is expected to moderate from the first quarter. During January-March period, GDP advanced at an annualized rate of 3.1%.
Retail Sales Ticked Up
The Commerce Department stated that U.S. retail and food services sales in June advanced 0.4% to $519.9 billion. This follows a slightly downward revision in May’s reading that now shows a gain 0.4% instead of 0.5% earlier. Notably, retail sales improved 3.3% from June last year.
The report suggests that sales at motor vehicles and parts dealers rose 0.7%, while at building material dealers the metric increased 0.5%. Meanwhile, sales at both food & beverage stores and furniture & home furnishing stores rose 0.5%. Sales at food services & drinking places jumped 0.5%.
Sales at both health & personal care stores and clothing & clothing accessories stores grew 0.5%. Sales at general merchandise stores increased 0.2%. Sales at non-store retailers jumped 1.7% but surged 13.4% from the prior-year period.
However, sales at electronics & appliance stores and receipts at gasoline stations fell 0.3% and 2.8%, respectively. Sales at gas station sales fell on account of lower prices. Excluding volatile gasoline sales, retail sales increased 0.7%.
4 Prominent Picks
It goes without saying that the Retail & Wholesale sector’s prospects are closely tied to the purchasing power of consumers, and with U.S. retail sales ticking up, the sector is likely to remain in the limelight. Retailers riding on the wave of favorable consumer environment and strategic endeavors have led the sector to advance 21.9% year-to-date. Consequently, picking up stocks from the space will be a lucrative move.
We have shortlisted stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Also, the stocks have outperformed the sector.
We suggest investing in Aaron's, Inc. AAN, which has a long-term earnings growth rate of 15% and VGM Score of A. This omnichannel provider of lease-purchase solutions has an average positive earnings surprise of 4.4% in the trailing four quarters. Shares of this Zacks Rank #1 company have increased approximately 52.6% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
Another stock worth considering is Target Corporation TGT with a long-term earnings growth rate of 7.1% and a VGM Score of B. This general merchandise retailer has an average positive earnings surprise of 2.6% in the trailing four quarters. Shares of this Zacks Rank #2 company have surged roughly 33.6% so far this year.
Investors can also count on Lithia Motors, Inc. LAD, which operates as an automotive retailer. This Zacks Rank #2 company has a long-term earnings growth rate of 7.1% and a VGM Score of B. The company has an average positive earnings surprise of 3.5% in the trailing four quarters. The stock has advanced about 56.4% so far in the year.
Dollar General Corporation DG, a discount retailer, is a solid bet. It has a Zacks Rank #2 and a VGM Score of A. The company with a long-term earnings growth rate of 10.9% has an average positive earnings surprise of 1.6% in the trailing four quarters. The stock has risen roughly 33.4% year to date.
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