Two Ways to Play the Retail Rebound (And Six Stocks to Sell)

Make not mistake—there’s a lot of power in your wallet. The U.S. consumer has a huge impact on the economy. Economists estimate that consumer spending accounts for nearly two-thirds of Gross Domestic Product (GDP). As stock investors, paying attention to this trend can reward us handsomely.

Right now, we’re in the midst of a retail rebound. Over the past twelve months, retail sales have risen at a healthy 6.4% annual pace. This is great news for the nation’s top retailers.

So, in this special feature, I identify two of my top retail recommendations. I currently recommend both of these stocks in my Growth Investor newsletter. I also point you to six retail stocks that should be avoided if possible.

Best Buy Lives Up to Its Name

Best Buy (BBY) is a popular consumer electronics and technology products retail chain, with operations in the U.S., Canada and Mexico. Founded in 1966, Best Buy now operates 1,500 stores throughout the U.S., including its big-box stores and mobile stores. The company also has “Geek Squad” Agents, who provide expert customer service and support.

Best Buy’s next earnings report is just around the corner–it will announce second-quarter results before the opening bell this Tuesday, August 28. And it’s shaping up to be a solid report. The consensus estimate is for $0.82 EPS on $9.27 billion in revenue. This works out to 18.8% annual earnings growth and 3.7% annual sales growth. Best Buy has beaten estimates for three of the past four quarters. So it’ll likely do even better.

BBY is an A-rated Strong Buy in Dividend Grader and a B-rated Buy in Portfolio Grader. So, it offers the best of both worlds: A generous 2.3% dividend yield, and strong fundamentals.

The Pioneer of the Athleisure Movement

With its average yoga pant running $100 a pop, Lululemon Athletica (LULU) has made athleisure wear into a big business. After all, there’s a large population of runners and yoga buffs who like to look good while they sweat.

Two decades ago, Chip Wilson opened a small studio in Vancouver, British Columbia. During the day, it sold a small collection of high-end yoga apparel. At night, it transformed into a local yoga studio. It didn’t take long for Lululemon to become a hit. Nowadays, Lululemon has more than 400 stores across four continents. And for workout buffs who are too busy to drive to their nearest store, there are multiple Lululemon e-commerce sites and mobile apps.

Lululemon will post its second-quarter result next Thursday, August 30. Analysts are expecting $0.49 EPS on $667.2 million in sales, or 25.6% annual earnings growth and 14.9% annual sales growth. Then again, analysts have revised their consensus EPS estimate higher by 8.8% in recent weeks. That’s a good sign that Lululemon will beat estimates, as it has for the past several quarters running.

I currently recommend LULU in my Growth Investor newsletter, and it earns an A-rating in my Portfolio Grader tool as well.

Six Retailers to Avoid At All Costs

Now a rising tide usually lifts all boats…but not in this case. While Best Buy and Lululemon are profiting handsomely from the retail rebound, others are still struggling. I’ve identified six such underperformers below. If you own any of these companies, you may want to consider selling them into near-term strength.

Sell These Six Stocks Into Near-Term Strength

Company Name Quantitative Grade Fundamental Grade Total Grade
BBBY Bed Bath & Beyond Inc. F D D
BIG Big Lots, Inc. D D D
JD, Inc. F C D
LAD Lithia Motors, Inc. F C F
LB L Brands, Inc. D D D
MIK Michaels Companies Inc D D D

To summarize, rising consumer spending has presented us with some excellent buying opportunities. But, there are still some stragglers that should be avoided for now. I’ll continue monitoring the latest economic data and market trends to identify more retail opportunities in this daily blog.

Until later,

Louis Navellier

Louis Navellier

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