“In the stock game, winning means reaching a higher price.” However, striking the right chord each time needs a fair amount of luck. Surely, we can target stocks on a bullish run having enough fuel to go miles. If a stock is continuously in an uptrend, there must be a solid reason or else it would have probably crashed. So, looking at such stocks that are capable of beating the benchmark they have set for themselves seems rational.
What does the trick for these types of stocks? A brief answer – “sound fundamentals” is fair enough to conclude the debate. But two words seem to be insufficient unless backed by a favorable recommendation, earnings beat potential and positive estimate revisions by analysts covering the stock.
You must have noticed how some stocks skyrocket after their earnings release. Studies indicate that on an average, positive earnings surprises drive strong returns in share price for several weeks following the report. The earnings season has started and the investor community is busy tallying estimates with actuals. The reporting period is undoubtedly considered the ideal time to rebalance one’s portfolio, but where to locate the greener pastures?
Retail Sector Holds the Baton This Earnings Season
After a brush with the rough tide caused by the sluggishness witnessed in emerging markets such as China and Brazil, and fears of challenging economic/political conditions in Europe post-Brexit, the U.S. economy looks steady now, and is geared up for the reporting cycle. The Q3 earnings season is underway, with results from 81 S&P 500 members.
Per the latest Earnings Trends report as of Oct 19, out of the 81 S&P 500 companies that have come up with their quarterly numbers, approximately 80.2% have posted positive earnings surprises, while 63% beat top-line expectations.
The performance of the index is not restricted to a single sector, and of the 16 Zacks sectors, 8 are expected to witness an earnings decline in Q3, with Autos, Oil/Energy and Transportation being drags. However, the Retail/Wholesale sector is displaying strength with total earnings expected to advance 4.5% and revenue growth of 5.3%.
The recent rebound in oil prices, a favorable labor market and a gradual improvement in the manufacturing sector and housing market are signals that the economy is in recovery mode, and undoubtedly the retail sector presents a lucrative investment hub amid such a backdrop.
4 Prominent Retail Stock Picks
Here we have highlighted four Retail/Wholesale stocks that have surged over 20% year to date and have earnings beat potential. These are stocks with a Zacks Rank #1 (Strong Buy) and positive Earnings ESP. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
An earnings beat boosts investor confidence in the stock, which is reflected in its rapid price appreciation.
Thus, these stocks could turn out to be great additions to your portfolio ahead of their earnings releases….
Amazon.com, Inc. (AMZN) is a solid bet with its stock price up 21% year to date. The stock flaunts a Zacks Rank #1 and has an Earnings ESP of +6.98%. The company delivered an average positive earnings surprise of 90.9% over the trailing four quarters, and has a long-term earnings growth rate of 35%. The company is slated to report its third-quarter 2016 results on October 27.
We also suggest investing in Best Buy Co Inc (BBY), shares of which have advanced roughly 30% so far in the year. Also, the stock has a long-term earnings growth rate of 10%. The retailer delivered an average positive earnings surprise of 22% over the trailing four quarters. The company, which is expected to release third-quarter fiscal 2017 results on November 17, has an Earnings ESP of +8.51% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Investors can also count on Burlington Stores Inc (BURL), with a Zacks Rank #1 and an Earnings ESP of +3.03%. The company registered an average positive earnings surprise of 16.1% over the trailing four quarters, and has a long-term earnings growth rate of 18.4%. Shares of the company, expected to report third-quarter fiscal 2016 results November 22, have soared 78.3% year to date.
Another stock that you may consider is Mercadolibre Inc (MELI), with a Zacks Rank #1 and an Earnings ESP of +8.24%. The company delivered an average positive earnings surprise of 28% over the trailing four quarters, and has a long-term earnings growth rate of 24.1%. Shares of this provider of an automated online eCommerce service have surged 48.2% year to date. The company is expected to report third-quarter 2016 financial numbers on November 3.
Where Do Zacks’ Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 “Strong Buy” stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 “Strong Sells” and other private research. See the stocks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report