With consumption responsible for over two-thirds of economic growth, the U.S. is a consumer-driven economy. So, everyone is looking to retail numbers for a true sign that the worst is over.
Thankfully, in recent months retail sales have been trending upwards. In April, retail sales rose 0.1%, substantially better than economists’ consensus estimate of a 0.6% decline. And excluding sales at gas stations, overall retail sales actually rose a very healthy 0.7%. In fact, nearly all the retail sale categories rose impressively in April. This is a good indicator that persistent consumer spending should continue to drive steady GDP growth.
But as I covered a few months ago, not all retailers are benefitting equally. For many households, the financial crisis and the subsequent recession is still a painful memory, so some have taken a hard look at where they spend their money. And this year’s payroll tax increases certainly didn’t help matters with household budgets.
So some retailers like J.C. Penney Co. Inc. (JCP) and Sears Holdings Corp. (SHLD) are still stuck in the mud—both companies posted substantial losses for the previous quarter. JCP is an F-rated sell while SHLD is a D-rated sell. Meanwhile, luxury department store chain Nordstrom Inc. (JWN) also underwhelmed expectations in the first quarter, so I consider it a hold right now.
Then again, there will always be a handful of retailers that will continue to draw in customers no matter what the overall economy is doing. There are also many services that have become indispensable in this era of high unemployment and economic uncertainty.
Take Wal-Mart Inc. (WMT). Even in the face of its ongoing probe in Mexico, this retailer has continued to draw in shoppers thanks to its credo of helping shoppers “save money so they can live better.” Due to Walmart’s unbeatable prices, 60% of America shops at this chain. And with 2.4% annual dividend yield, an ongoing $15 billion stock buyback program, shareholders find similar value with WMT stock. WMT is an A-rated Buy.
The Home Depot Inc. (HD) is another compelling profit opportunity in retail. Just yesterday the company announced estimate-topping sales and earnings results for the first quarter. HD also outperforms the competition on many fronts; among home improvement retailers, Home Depot boasts the highest return on equity and annual dividend yield. Home Depot continues to profit from the housing recovery and the warmer weather should bring even stronger sales and earnings this quarter. HD is also an A-rated Buy.
So instead of eschewing retail stocks altogether, limit your new buys to only those stocks that are A- or B-rated in my Portfolio Grader tool. In addition to HD and WMT—two stocks that I currently endorse for my Blue Chip Growth newsletter service—here’s a sample of some of the best opportunities in retail right now:
- Click here to see my top Multiline Retail stocks.
- My top Specialty Retail companies.
- My top Internet and Catalog Retailers.
P.S. And if you’re really looking to profit from the return of the American consumer, my Blue Chip Growth Buy List includes half a dozen of my top picks from this sector. And now is a great time to give Blue Chip Growth a spin. For complete details on how you can save 50% on Blue Chip Growth, click here.