Americans are spending aggressively amid inflationary pressures. A surge in oil prices since the beginning of the Iran war in late February has been pushing up the prices of goods. However, the retail sector has shown immense resilience amid these challenges.
Retail sales have been on the rise at a steady pace this year, driven by high demand for consumer goods. Given this situation, it would be ideal to invest in retail stocks with a strong online presence. We have selected five stocks, namely, Casey's General Stores, Inc. CASY, Five Below, Inc. FIVE, Starbucks Corporation SBUX, Tapestry TPR and The TJX Companies, Inc. TJX.
These stocks have seen positive earnings estimate revisions in the past 60 days, carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are set for solid returns. You can see the complete list of today’s Zacks #1 Rank stocks here.
Retail Sales Continue to Grow
Retail sales rose 0.9% sequentially in May after increasing 0.4% in the prior month and surpassing analysts’ expectations of a rise of 0.5%. This is the fourth straight month that retail sales have surged. Year over year, retail sales jumped 6.9% in May.
The surge in retail sales was primarily driven by aggressive spending by households on motor vehicles.
Receipts at auto dealerships rose 1.2%, while sales at non-store retailers, which include online retailers, gained 1.5% in May. Sales at furniture stores jumped 1%.
Although part of the rise can be attributed to high oil prices, which saw consumers paying more for gasoline, many believed that the surge was temporary. Oil prices have jumped to a four-year high since the Middle East crisis began in late February.
However, energy costs have eased lately, which is being seen as a positive. Consumer sentiment also rose for the first time in three months in June. The University of Michigan’s latest survey showed that consumer sentiment rose 9% to a preliminary reading of 48.9 in June.
Oil prices are likely to ease further as the United States announced that it has reached a peace deal with Iran, which is likely to be signed soon. The peace deal would allow the reopening of the Strait of Hormuz, a key route for the smooth passage of oil tankers and ships.
Meanwhile, the Federal Reserve left interest rates unchanged in its current range of 3.5-3.75% at the end of its policy meeting on Wednesday. The Fed is mulling an interest rate hike sometime later this year, which could weigh on the retail sector. However, solid demand and aggressive spending have been boosting the retail sector.
5 Retail Stocks With Upside
Casey's General Stores
Casey's General Stores, Inc. operates convenience stores under the Casey's and Casey's General Store names in 16 states, mainly Iowa, Missouri and Illinois. CASY offers a comprehensive range of products and services to meet the needs of its customers. In addition to fuel, the stores provide a wide variety of merchandise, including groceries, prepared food, snacks, beverages, tobacco products, health and beauty aids, school supplies, housewares, pet supplies and automotive supplies.
Casey’s has an expected earnings growth rate of 9.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.1% over the last 60 days. CASY currently has a Zacks Rank #2.
Five Below, Inc
Five Below, Inc. is a specialty value chain retailer that provides a wide range of premium quality and trendy merchandise for $5 or below. FIVE mainly targets teenagers or pre-teen shoppers for its products, which include certain brands and licensed merchandise. Notably, these products belong to categories such as Style, Room, Sports, Tech, Create, Party, Candy and Now.
Five Below’s expected earnings growth rate for the current year is 30.4%. The Zacks Consensus Estimate for current-year earnings has improved 8.1% over the past 60 days. FIVE presently carries a Zacks Rank #1.
Starbucks Corporation
Starbucks Corporation is the leading roaster and retailer of specialty coffee globally. In addition to fresh, rich-brewed coffees, SBUX’s offerings include many complimentary food items and a selection of premium teas and other beverages, sold mainly through the company’s retail stores. Starbucks’popular brands include Starbucks coffee, Teavana tea, Seattle's Best Coffee, La Boulange bakery products and Evolution Fresh juices.
Starbucks’ expected earnings growth rate for next year is 12.7%. The Zacks Consensus Estimate for current-year earnings has improved 4.3% over the past 60 days. SBUX currently has a Zacks Rank #1.
Tapestry
Tapestry is the designer and marketer of fine accessories and gifts for women and men in the United States and internationally. TPR offers lifestyle products, which include handbags, women’s and men’s accessories, footwear, jewelry, seasonal apparel collections, sunwear, travel bags, fragrances and watches.
Tapestry’sexpected earnings growth rate for the current year is 36.3%. The Zacks Consensus Estimate for current-year earnings has improved 7.8% over the past 60 days. TPR presently sports a Zacks Rank #1.
The TJX Companies
The TJX Companies, Inc. is a leading off-price retailer of apparel and home fashions in the United States and worldwide. TJX’s broad range of assortments at varying prices helps it reach out to a broad range of consumers. In addition, The TJX Companies tries to attract consumers through a rapid turnover of inventory.
The TJX Companies’ expected earnings growth rate for the current year is 9.3%. The Zacks Consensus Estimate for current-year earnings has improved 2.2% over the past 60 days. TJX presently has a Zacks Rank #2.
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The TJX Companies, Inc. (TJX): Free Stock Analysis Report
Starbucks Corporation (SBUX): Free Stock Analysis Report
Casey's General Stores, Inc. (CASY): Free Stock Analysis Report
Five Below, Inc. (FIVE): Free Stock Analysis Report
Tapestry, Inc. (TPR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).