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.

After a slow June, retail sales rebounded 0.6% in July. The bulk of the gains came from automobile sales, which jumped 1.4%. Core retail sales, which exclude autos, gasoline, building materials and food services, increased 0.3% last month, while June’s figure was revised to a 0.2% rise.

Consumer spending also helped to lift second-quarter economic growth. Last quarter, consumer spending rose 3.1%, higher than the previously estimated 2.9% pace. This, coupled with increased government spending, propelled the economy 3.7% higher in the second quarter.

So things are looking up for consumer spending for now, and this presents a buying opportunity for stock investors. However, that’s not to say that I recommend just any retail stock.

In my Blue Chip Growth newsletter, I recommend a handful of premium consumer and retail plays. Current subscribers may access these recommendations at any time via the Buy List page. For everyone else, today I’d like to reveal one of my top retail plays…

L Brands Inc. (LB) is a specialty retail company that operates roughly 2,976 stores throughout North America under the Victoria’s Secret, PINK, Bath & Body Works and La Senza (Canada only) brand names. The company also has a robust online and catalog sales business. L Brands also owns apparel importer, MAST Industries; luxury department store operator, Henri Bendel; and The White Barn Candle Company.

Both men and women are intimately familiar with Victoria’s Secret, and I know that many women can’t help but go into a Bath & Body Works store when passing by one. Both of these brands have become popular mainstays in shopping districts and malls across the country.

That was made clear in today’s August sales report. Last month, L Brands’ net sales climbed 8% year-on-year to $826.0 million. Meanwhile, sales at stores open a year or longer increased 6%.

LB shares gapped up higher after the announcement, and there’s plenty more where that came from. This quarter, L Brands is expected to post 4.7% sales growth and 4.5% earnings growth. That may seem modest, but it’s well above the average for the S&P 500. For the third quarter, the S&P 500 as a whole is headed for a 2.6% sales decline and a 4.1% earnings decline.

L Brands also knows how to reward its shareholders. A few weeks ago, L Brands initiated a new $250 million stock buyback program. The stock also pays a generous 2.4% dividend. LB is an A-rated Strong Buy in Portfolio Grader.

If you’re looking for other ways 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 any stocks that I recommend for my Blue Chip Growth newsletter service—which has a bunch of premium retail stocks—here’s a sample of some of the best opportunities in retail right now:

Sincerely,

Louis Navellier

Louis Navellier

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