The Best Way to Play the Retail Rebound

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.

Unfortunately, the cold winter months put a damper on consumer spending. In February, retail sales pulled back 0.6%. This was worse than expected; economists had expected retail sales to be flat. For the first time since 2012, we’ve seen retail sales fall for three months in a row. Excluding auto, gasoline, building materials and food sales, retail sales were flat in February.

The good news is now that spring is nearly upon us, economists expect Americans to be more willing to go shopping. Also, as rough as the winter weather was, spring cleaning should begin in earnest shortly. Many homeowners are going to be repairing their homes and sprucing up their yards, so we should see a rebound in building materials sales, gardening supplies and more. It also doesn’t hurt that consumers now have more disposable income due to unusually low prices at the pump.

So things are looking up for consumer spending this spring, and this presents a buying opportunity for stock investors. However, that’s not to say that I recommend just any retail stock. A few weeks ago, I explained what you should look for in a healthy retailer—L Brands Inc. (LB) being a great example of this—and which warning signs you should watch out for in troubled stocks—in this case, Sears Holdings Inc. (SHLD) comes to mind. And knowing the difference between the two pays off in the long run: If you had invested in LB on March 12, 2014, you’d be sitting on over a 60% gain. If you had purchased SHLD instead a year ago, you’d be faced with a 17% loss.

So if you’re looking to profit from rebounding consumer spending, I strongly recommend you limit your new buys to only those stocks that are A- or B-rated in my Portfolio Grader tool. In addition to LB—a stock 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:

Sincerely,

Louis Navellier

Louis Navellier

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