by Louis Navellier | May 18, 2010 6:41 am
Retail is heating up. A look at 11 hot retail ETFs to buy now[1] shows that the sector is dramatically outperforming the market – up to four times over! That means retail stocks could be a great investment right now for investors looking to buy into the stock market on a dip. Five discount retail stocks I currently rate buys are Overstock.com (OSTK[2]) Family Dollar (FDO[3]), Costco (COST[4]), Priceline.com. (PCLN[5]), and 99 Cents Only Stores (NDN[6]).
Consumer spending in the U.S. rose in March by the most in five months, pointing to a recovery that may accelerate when the economy creates more jobs. Another incredibly positive sign is that today Home Depot (HD[7]) just reported its first sales rise in four years – meaning the bottom in housing is near and consumers are spending more on home improvement and appliances. The icing on the cake is that global markets are equally strong – for instance, this week we learned Japan consumer confidence just hit its highest mark since 2007.
Yes, stocks have gotten a little volatile in May. But as I’ve written recently, the old adage “sell in May and go away” is a bad idea[8]. The reality is that the recovery is still going strong and that the recent consolidation. It’s true that some luxury goods companies are struggling and large discretionary expenses on automobiles and homes are still unimpressive. But on the lower end of the retail food chain, many stores are ringing up big profits.
So if you have some spare cash and you’re looking to invest in retail, here are five discount retail stocks [9]worth a look.
Overstock.com Inc. (OSTK[2]) is an online retailer offering closeout and discount merchandise from home decor to jewelry to electronics. The company also operates an online auction service akin to eBay (EBAY[10]) and even lists real estate for sale! As value conscious consumers flock to the web to find the best deal, they are clicking on Overstock.com more often due to its large scale and deep discounts.
The company was forecast to post a loss of -7 cents a share in its most recent earnings report, but instead posted an impressive 16 cent EPS – a nearly 330% earnings surprise! Just imagine what OSTK can do as consumer spending improves even more.
Family Dollar Stores, Inc. (FDO[3]) is a chain of retail discount stores for low to lower-middle income consumers in the United States. Items on sale at Family Dollar include household products, snacks, pet food and housewares. FDO stock controls approximately 6,600 stores in 44 states and the District of Columbia.
While some retail stocks have seen troubles in the last year, Family Dollar has been profitable for each of the last four quarters and has topped Wall Street EPS forecasts in each period of the last fiscal year. FDO stock also grown its earnings per share for each of the last three consecutive quarters.
It’s no secret that I love online retailer Priceline.com (PCLN[5]), since I’ve written about it several times recently. PCLN allows buyers to name their own price for everything from airline tickets to rental cars to cruises. With its patented business model, the company generates virtually all of its sales from travel-related services. You may not think that travel spending is very high right now, but the bottom line is that value-conscious consumers really love Priceline’s ability to ‘haggle’ on prices. This has allowed the website to become an oasis for cash-strapped consumers and generate huge numbers even during the recession.
Case in point: Pricelinereported strong earnings May 11 including EPS that doubled 2009 numbers, topping earnings forecasts. And for the current quarter, PCLN stock said that its strong first-quarter earnings results reflected a healthy increase in hotel and international travel bookings through its Web sites – boding very well for future Priceline.com sales.
(Related: CTRP, EXPE, OWW earnings also impress[11])
Costco Wholesale Corp. (COST[4]) is one of the biggest forces in the world of discount retail. Costco operates membership warehouses that offer a selection of branded and private label products in a no-frills setting, allowing consumers to buy everything from food to electronics to furniture. COST stock operates about 560 warehouses in the U.S., and over 100 more in global markets like Canada, the United Kingdom, Korea and Japan.
Costco earnings are up again at the end of the month on May 27. My fundamental analysis shows strong sales growth and earnings growth behind COST stock, so there’s a very good chance we’ll see a breakout report in just a few weeks. Now is your chance to buy in to this discount retail stock before earnings.
99 Cents Only Stores (NDN[12]) sells consumer products through its retail stores. As no surprise, NDN prides itself on a suite of goods sold for less than $1, including kitchen items, toys, hardware and foodstuffs. The company also sells merchandise through its Bargain Wholesale division to retailers. As of 2009, the company operated 271 retail stores with 200 in California, mainly the western United States.
As far as earnings history goes, you can’t find a discount retail stock[13] with much better performance than 99 Cents Only. NDN stock has topped EPS forecasts for each of the last four quarters by at least 40% and as much as 150%. NDN stock has also grown its earnings for each of the last four consecutive quarters. That’s momentum that growth investors can take to the bank.
Tell us what you think here.[14]
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