Retail spearheads the longest-ever bull run: 5 top picks

 

The rally in U.S. stocks that started a decade ago is about to become the longest bull run in Wall Street’s history. The major driver is, undoubtedly, companies growing their profits at the best pace in eight years, thanks to the economy’s growth at the fastest clip since 2014.

Retail stocks should take much of the credit for propelling the broader market. Most of the stocks are a breakout, hitting new highs on robust sales. Higher income, tight labor market and Republican tax cuts are driving sales and compelling retailers to raise their expectations this year.

Given the positives, investing in solid retail stocks that can make the most of the record bull run and scale even higher seems prudent.

Bull Market on the Verge of Becoming the Longest in History

The bull market turns 3,453 days on Aug 22. It’s the longest period of gains in America’s stock market history. Such a stellar run began on Mar 9, 2009, during the period of the Great Recession and the financial crisis since the 1930s.

Robust corporate earnings on the back of slow-but-steady economic growth coupled with accommodative monetary policy from the Fed, catapulted the Dow from nearly 6,500 to around 26,000 today. The broader S&P 500, in fact, quadrupled from 666, its 2009 low.

Nick Sargen, senior investment advisor for Fort Washington Investment Advisors in Cincinnati added that “the principal driver of the stock market now is strong profit growth and the perception it will continue as the economy expands at a 3 percent clip in 2018.”

Nonetheless, the bull market quite successfully survived a slew of panic attacks, including downgrade of America’s credit ratings, collapse of the euro, dramatic drop in oil prices and the recent trade war issues, to say the least. 

Retail Sector Clear Leader

Among such broad-based gains, retail stocks, in particular, deserve most of the credit. After all, the SPDR S&P Retail ETF XRT just hit an all-time high and is seeing many stocks on the verge of a breakout, something that stock pickers ought to be tracking.

Some of the notable stocks such as Best Buy Co., Inc. BBY and Lululemon Athletica Inc. LULU have registered record closes. By the way, Michael Kors Holdings Limited KORS, RH RH, Boot Barn Holdings, Inc. BOOT and Tilly’s, Inc. TLYS recently touched multiyear highs.

But, some skeptics did talk about a retail apocalypse. However, Walmart Inc.’s WMT recent stellar quarterly earnings restored faith in traditional brick-and-mortars. The retailer’s fiscal second-quarter earnings and sales beat expectations and notched the best comparable sales growth in the last 10 years. 

Not just Walmart, Nordstrom, Inc. JWN, The Home Depot, Inc. HD and coach owner Tapestry, Inc. TPR have also benefitted as shoppers showed more confidence.

What’s Driving Retail Spending?

Americans are spending on almost everything, from jeans to handbags to home furnishings, as an uptick in personal income and employment are adding to their incomes.

Disposable personal income increased $167.5 billion, or 4.5%, in the second quarter, which followed a gain of $256.7 billion or 7% in the first quarter. At the same time, the jobless rate dropped to 3.9%. This is the eighth time that the unemployment rate has fallen below the 4% mark since 1970. The current unemployment rate is now at a nearly two-decade low.

To top it, the cut in taxes increased take-home pay. This gave Americans the means to spend more. The “Tax Cuts and Jobs Act” constricted the individual income tax brackets. While the top rate got trimmed from 39.6% to 37%, the 33% bracket declined to 32%, the 28% bracket to 24%, the 25% bracket to 22%, and the 15% bracket to 12%.

5 of the Best Retail Stocks to Buy Now

Given the bullishness, let’s invest in retail stocks that have not only outperformed in the current bull market but also have scope to gain further.

These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Dollar Tree, Inc. DLTR operates discount variety retail stores in the United States and Canada. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has increased 0.2% in the last 60 days. The stock’s expected earnings growth rate for the current quarter and year are 16.2% and 14%, respectively. The company has given a superb return of 653.1% in the past decade.

BJ’s Restaurants, Inc. BJRI owns and operates casual dining restaurants in the United States. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has jumped 6.5% in the last 60 days. The stock’s expected earnings growth rate for the current quarter and year are 40% and 50.4%, respectively. The company has given a stellar return of 429.7% in the past 10 years.

RH RH operates as a retailer in the home furnishings. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has increased 1.8% in the last 60 days. The stock’s expected earnings growth rate for the current quarter and year are 166.2% and 118.4%, respectively. The company has given a solid return of 307.3% in the past decade.

Carrols Restaurant Group, Inc. TAST, through its subsidiaries, operates franchisee restaurants of Burger King. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has climbed 5.9% in the last 60 days. The stock’s expected earnings growth rate for the current quarter and year are 25% and 80%, respectively. The company has given an encouraging return of 440% in the past 10 years.

The TJX Companies, Inc. TJX operates as an off-price apparel and home fashions retailer. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased 0.4% in the last 60 days. The stock’s expected earnings growth rate for the current quarter and year are 23.5% and 20.3%, respectively. The company has yielded a whopping return of 597.6% in the past decade.

The Home Depot, Inc. (HD): Free Stock Analysis Report
 
SPDR-SP RET ETF (XRT): ETF Research Reports
 
Nordstrom, Inc. (JWN): Free Stock Analysis Report
 
lululemon athletica inc. (LULU): Free Stock Analysis Report
 
Tilly’s, Inc. (TLYS): Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY): Free Stock Analysis Report
 
Walmart Inc. (WMT): Free Stock Analysis Report
 
Dollar Tree, Inc. (DLTR): Free Stock Analysis Report
 
The TJX Companies, Inc. (TJX): Free Stock Analysis Report
 
BJ’s Restaurants, Inc. (BJRI): Free Stock Analysis Report
 
Carrols Restaurant Group, Inc. (TAST): Free Stock Analysis Report
 
Restoration Hardware Holdings Inc. (RH): Free Stock Analysis Report
 
Boot Barn Holdings, Inc. (BOOT): Free Stock Analysis Report
 
Michael Kors Holdings Limited (KORS): Free Stock Analysis Report
 
Tapestry, Inc. (TPR): Free Stock Analysis Report
 
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