Summer is well underway and it looks like things are heating up for the economy. Consumer confidence just hit a five-month high for the month of June. After moderately improving in May to 94.9, the Conference Board’s index is now at 101.4, crushing analysts’ estimates of 97.5. Consumers have specifically grown more optimistic about the near-term future. Those who are saying that business conditions are “good” rose to 26.4%, while those who are saying jobs are “plentiful” have increased to 21.4%.
This is the latest in a series of reports that highlight the economic rebound since a slow start to the year. As I mentioned last month, consumption is responsible for over two-thirds of economic growth, so we live in a consumer-driven economy.
And the industry that’s most benefitting from the resurgence of consumer spending and confidence is retail. Remember, retail sales jumped 1.2% in May and have been revised steadily higher since March. There’s no denying that this is a powerful economic trend, so today I’d like to share with you two of my top retail stocks.
Lowe’s Companies Inc. (LOW) is the second-largest home improvement retailer in the world. Lowe’s is also the world’s second-largest hardware chain. From kitchen appliances to building materials to paint to electrical supplies, Lowe’s has it all. And right now, we are in the middle of home improvement season, so business has been booming. This quarter, analysts expect 4.6% sales growth and 20.2% earnings growth over last year. Lowe’s also takes care of its shareholders. The company is in the middle of a multi-billion-dollar share repurchase program, having bought back $1 billion of its stock last quarter. At current prices, LOW has a decent 1.3% annual dividend and paid out $222 million in dividends in the first quarter. LOW is currently an A-rated strong buy in Portfolio Grader.
Target Corp. (TGT) is known for stocking everything from household essentials to electronics to groceries. In addition, Target offers in-store amenities, like Target Cafè , Target Photo and Target Pharmacy. There are a few reasons why Target is an especially attractive buy right now. First, after a disappointing expansion campaign into Canada, the company has closed the last of its 133 Canadian retail stores. This has freed up resources for Target to turn itself around at its U.S. locations. Target also recently announced that it is selling its pharmacy and clinic businesses to CVS Health Corp. (CVS) for $1.9 billion. Under the terms of the agreement, CVS Health will take over Target’s existing services, and Target will now have more resources to devote to its core retail business.
With all of these plans in the works, Target is expected to post tremendous earnings growth for the next few quarters. This quarter, analysts estimate that Target will report $1.11 EPS on revenues of $17.4 billion. Amidst all of this, Target is rewarding its shareholders. Target is doubling its share repurchase program to $10 billion and is hiking up its quarterly dividend by nearly 8%. TGT is also an A-rated strong buy in Portfolio Grader.
So, if you’re looking for strongly rated retail stocks to diversify your portfolio, then both TGT and LOW are great stocks to consider. Beyond that, my Portfolio Grader tool is a helpful resource for screening other retail stocks.