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 November, retail sales rose 0.7%, substantially better than economists’ consensus estimate of just 0.4% growth. October’s retail sales were revised to reflect a 0.5% gain, up from 0.3% earlier. This is a good indicator that persistent consumer spending should continue to drive steady GDP growth.
At the same time, 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.
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, office supply store Staples Inc. (SPLS) also provided a lackluster fourth-quarter earnings forecast, so I consider it a hold. The same goes for Dollar General Corp. (DG), which fell to a C-rated hold after last week’s mixed earnings report. And, after its Q3 earnings report, discount variety store Big Lots Inc. (BIG) is, at best, a very cautious buy.
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.
As I mentioned a few days ago, CVS Health Corp. (CVS) is at the top of its game–and at the top of the retail drugstore industry. Characterized by a diversified business model, an unwavering committment to health (and a decent 1.2% dividend yield), CVS is an A-rated Strong Buy. I also have my eye on athletic retail giant Foot Locker (FL), which has gained an edge on the competition by focusing on the growing "athleisure" clothing market. FL is a solid B-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 CVS and FL—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.