With consumption responsible for over two-thirds of economic growth, the U.S. is a consumer-driven economy. So, everyone is looking to retail numbers for a true sign that the worst is over.
Thankfully, in recent months, retail sales have been trending upwards. In November, retail sales rose 0.7%, substantially better than economists’ consensus estimate of just 0.4% growth. October’s retail sales were revised to reflect a 0.5% gain, up from 0.3% earlier. The upward trend is a good indicator that persistent consumer spending should continue to drive steady GDP growth.
At the same time, not all retailers are benefitting equally. For many households, the financial crisis and the subsequent recession is still a painful memory,. So, some have taken a hard look at where they spend their money.
Some retailers like J C Penney Company Inc (JCP) and Sears Holdings Corp (SHLD) are still stuck in the mud — both JC Penney and Sears posted substantial losses for the previous quarter. JCP stock is an F-rated “sell” while SHLD stock is a D-rated “sell.” Meanwhile, office supply store Staples, Inc. (SPLS) also provided a lackluster fourth-quarter earnings forecast. So, I consider SPLS stock a “hold.” The same goes for Dollar General Corp. (DG), which fell to a C-rated “hold” after last week’s mixed earnings report. And, after its Q3 earnings report, discount variety store Big Lots, Inc. (BIG) is, at best, a very cautious “buy.”
Then again, there will always be a handful of retail stocks that will continue to draw in customers no matter what the overall economy is doing. There are also many services that have become indispensable in this era of high unemployment and economic uncertainty.
CVS Health Corp (CVS) is at the top of its game — and at the top of the retail drugstore industry. Characterized by a diversified business model, an unwavering committment to health (and a decent 1.2% dividend yield), CVS stock is an A-rated “strong buy.” I also have my eye on athletic retail giant Foot Locker, Inc. (FL), which has gained an edge on the competition by focusing on the growing “athleisure” clothing market. FL stock is a solid B-rated “buy.”
So, instead of eschewing retail stocks altogether, limit your new buys to only those retail stocks that are A- or B-rated in Portfolio Grader.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
