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 latest same-store sales data didn’t paint a pretty picture for March. Of the six retailers surveyed by Thomson Reuters, only one was able to beat expectations. That was L Brands Inc. (LB), which I currently recommend in my Blue Chip Growth newsletter. Four of the six missed expectations: The Buckel (BKE), Costco Wholesale Corp. (COST), Fred’s (FRED) and Zumiez (ZUMZ). As a whole, the retail sector is expected to have had a luckluster March, with a 0.1% decline projected for retail sales.
The good news is now that spring is upon us, economists expect Americans to be more willing to go shopping. Also, as inconvenient 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 months ago, I explained what you should look for in a healthy retailer—Home Depot Inc. (HD) being a great example of this. In a separate blog post, I identified which warning signs you should watch out for in troubled stocks—in this case, Men’s Wearhouse Inc. (MW) comes to mind. And knowing the difference between the two pays off in the long run: If you had invested in HD in December 2015, you’d be sitting on a modest 1.3% gain. If you had purchased SHLD instead a few months ago, you’d be faced with nearly a 7% 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 and HD—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: