3 Retail Winners For This Holiday Season

3 Retail Winners for This Holiday Season

The final quarter is around the corner and retailers are pinning their hopes on the upcoming holiday season, which is generally a ‘Make or Break’ for retailers as it accounts for nearly 20 – 40% of the annual sales. So the question arises: Will this holiday season meet retailers’ expectations?

The predictions, however, do not seem overwhelming. The National Retail Federation – the largest retail trade association – anticipates November and December sales to grow 3.9% to nearly $602.1 billion, an improvement from the 3.5% rise in the comparable prior-year period. However, 2011 and 2010 recorded sales growth of over 5%.

In another survey by BDO USA, chief marketing officers at top U.S. retailers have predicted a 2.5% holiday comparable store sales growth this year versus 3.7% projected last year.

These projections reflect the effects of a tepid domestic economic backdrop, political mêlée following the 16-day government shutdown, and soft job opportunities, which have kept investors on tenterhooks.

What further makes this holiday season challenging for retailers is the time frame – as 2013 presents only 25 days between Black Friday and Christmas as against 31 days last year. Moreover, retailers, which witness more traffic during weekends, because there are only 4 full weekends in December this time around versus 5 in 2012.

Also, retailers are facing higher promotional expenditures as they are taking several initiatives to drive cautious, budget-constrained consumers to the shops as the season may be a tough one.

A gradually recovering housing market and tax changes have also been identified as potential threats.

Consumer confidence dropped to six-month low of 71.2 in October from 80.2 in September on account of the government shutdown and the concerns over hitting the debt-ceiling. This could be detrimental to the economy’s health, as consumer spending constitutes over two-third of the U.S. economic activity.

The overall scenario does not seem too encouraging as of now with the Federal Reserve continuing with its $85 billion monthly stimulus program to keep interest rates low and boost economic growth. The two-day Federal Open Market Committee (FOMC) meeting get underway on Tuesday and market experts are keeping their fingers crossed in the hope that the Fed would make no changes with respect to quantitative easing, until April 2014.

Despite a discouraging overview, the retail sector still remains a lucrative investment opportunity for investors. Therefore, it might be a good idea to bet on select retail stocks that are poised to beat earnings estimates in the fourth quarter. An earnings beat will reiterate investors’ confidence in these stocks, leading to rapid price appreciation.

How to Choose a Stock?

Picking the best stocks from the Retail/Wholesale space for one’s portfolio is not a fairly simple task. However, an easy way to narrow down the list of choices during this earnings season is by looking at stocks that have the combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Zacks Earnings ESP.

Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement.

For investors seeking to apply this strategy to their portfolio, we have highlighted 3 Retail/Wholesale stocks that may stand out this earnings season:

Best Buy Co., Inc. (BBY) is a Zacks Rank #1 stock with an earnings ESP of +18.18%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is pegged at 11 cents. Over the past 30 days, estimates (on average) have inched up by a penny. This Richfield, Minn. - based retailer of consumer electronics had registered an average positive earnings surprise of 31.37% over the trailing four quarters.

- Best Buy is slated to report results on Nov 19, 2013.

Five Below, Inc. (FIVE) is a Zacks Rank #2 stock with an earnings ESP of +25.00%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is pegged at 4 cents. Over the past 30 days, estimates (on average) have remained unchanged.

- Five Below is slated to report results on Nov 25, 2013.

The Kroger Co. (KR) is a Zacks Rank #3 stock with an earnings ESP of +1.89%. The current Zacks Consensus Estimate for third-quarter fiscal 2013 is pegged at 53 cents. Over the past 30 days, estimates (on average) have remained unchanged. This Cincinnati, Ohio based retailer had registered an average positive earnings surprise of 9.73% over the trailing four quarters.

-Kroger is slated to report results on Dec 5, 2013.

Going Forward

We believe that the above stocks with strong fundamentals and growth prospects are good investment options at the moment. As the U.S. stocks look for a survival strategy, a sneak peek into the retail space for some possible outperformers backed by a favorable Zacks Rank and a positive Zacks Earnings ESP could be handy for investors.

Original post