We’re beginning to see some signs that the consumer is pulling back a bit. Most of the less-than-expected 0.4% gain in retail sales last month was from still-robust automobile sales. When it comes to smaller things and discretionary spending, consumers are starting to show a reluctance to spend their hard-earned cash right now. They’re really cutting back on things like restaurants, electronics and building materials as we head into the third quarter. We’ll see how things change as get closer to back-to-school season, but for the moment it looks like many retailers are going to struggle.
So what’s a careful investor to do? In this type of uncertain environment, it pays more than ever to stick to those retail and consumer-related stocks that have the very best fundamentals.
Even when things slow down, some companies will continue to see increased demand and steadily improving fundamentals. One such company is Destination Maternity (DEST). The company makes maternity clothing and accessories and boasts a unique shopping experience that keeps customers in the store longer. It seems to be working, as the company has delivered solid results. Management recently raised its guidance for the rest of the year and analysts are scrambling to raise their estimates for this year and next. Portfolio Grader has noticed the steady improvement at the retailer and gives the stock the highest ranking of “A.”
Christopher & Banks (CBK) is another retailer that appears to be poised to buck the trend of softer retail spending. The company’s 605 stores sells women’s apparel and accessories, and business is much better than anyone anticipated. The company saw same-store sales leap ahead by more than 23% in the first quarter and had impressive total sales gains in spite of closing 10% of their stores. C&B has blown away the consensus analysts’ estimates with four huge positive surprises and will look to make it five later this summer. Insiders must like what they see: Several, including the CEO, have bought stock in recent weeks. The stock gets an “A” in Portfolio Grader and is a “strong buy” as we go into the fall shopping season.
Of course, let’s not forget where the strength was in this report. Consumers delayed purchasing vehicles until the economy got a little better. Carmax (KMX) has been a major beneficiary of this pent-up demand and should continue to see strong sales and profit growth. The stock gets Portfolio Grader’s highest ranking of “A” and is also a “strong buy” right now.
As consumers become more cautious and selective about spending their money, make sure you are only investing in those they favor with their dollars. These three stocks are seeing strong growth and have excellent fundamentals.
Louis Navellier is the editor of Blue Chip Growth.