3 Reasons to Buy Retail Stocks Now


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With the holiday season just around the corner, consumers waiting for an opportunity to celebrate and vaccinations reaching more and more people, this holiday season should shape up to be a pretty good one.

It now appears that the retail sector, which has been seeing reopening demand for a few months now, is likely to see a great finish to an otherwise strong year.

Here are the top reasons to take the plunge into retail-

Experts Agree Consumers Will Splurge

The Mastercard SpendingPulse survey projects holiday season sales growth at 7.4% this year (with both brick-and-mortar and ecommerce growing at more or less the same rate). Ecommerce is expected to grow 57.3% from 2019, taking its share of total retail from 12% to 18%. The 2020 surge is of course pandemic-driven.

This year’s strength is attributed to pent-up demand and sky-high consumer savings. And it’s not limited to the at-home categories that have been supporting retail through the thick of the pandemic, but more broad-based across apparel, jewelry (expected to grow 52.9%!), luxury items, experiences, restaurants, etc. with self-indulgence ruling the day.


Deloitte’s projection for the 2021 holiday season (November through January) is for sales growth of 7-9%. Ecommerce is expected to grow 11-15%. It expects increased spending on services, travel and restaurants even as spending on goods remains steady. Significantly, consumers are expected to buy enthusiastically enough to deplete their savings to take them back to pre-pandemic levels.  

The U.S. Census Bureau estimated that sales in the last holiday season (November 2020 through January 2021) grew 5.8%. So the above numbers comes off a relatively strong year that was anchored by ecommerce.


Vaccinations to Increase Spending on Services

This is, of course, a no-brainer. People are likely to feel much more comfortable visiting salons, traveling or going out for meals when they’ve been vaccinated. Services spending coming back will be a big deal for the retail sector.

Last year, smaller retailers found themselves in a spot, as everyone scrambled to deliver goods online. Those that survived did so only because of their ability to move some business online, through apps, websites and/or online marketplaces. The buy-online-pickup-in-store (BOPIS), buy-online-pickup-at-curb (BOPAC) and a host of other omnichannel trends have only accelerated since because of the consumer demand for convenience.


But this year, because of vaccinations, many more people are likely to visit stores. Because you need to get out to really experience the holiday season and there’s a certain joy in touching and feeling what you’re going to buy. And after being shut down and starved of social gatherings, there is a pent-up demand for this. Store visits also increase impulse buying, which of course increases sales.

Lower/Fewer Promotions Could Support Stronger Profitability

The primary concerns that retailers have this year are the labor shortage and supply chain-related constraints.


Although leading retailers have declared that they will be employing thousands of temporary workers to take on the holiday pressure, we don’t know yet whether they will find the help they need. Certainly, most reports talk about the tightness in the labor market.

And it isn’t just a question of the number of unemployed people, but the fact that there appears to be skills gap as some people continue to sit at home because of childcare issues. So there are fewer than the needed people in stores, as also the supply chain.

Many of the holiday items typically come from Asia, large parts of which have been shut down due to fresh infections. And because shutdowns are extremely disruptive in terms of creating bottlenecks, we are now seeing a shortage of containers where they’re needed, congestion at leading ports leading to loading/unloading delays and then, finally, a dearth of trucks to take them to their final destination. Add to that the fact that ecommerce has driven up trucking demand at the last mile, further increasing pressure on trucking resources.


All right, now you must be wondering how these constraints can be at all positive for retailers. The answer lies in the fact that the holiday season is typically characterized by huge sales at heavy discounts. But this year, because of the supply chain issues, there are likely to be fewer deals. And whatever deals there are, they are likely to be reserved for the early birds.

So if you book well in advance of the key shopping period, you would not only have a better chance of finding what you need but also have a better chance of getting in on some deals. And you’re also likely to get it on time because fulfillment is taking weeks right now. For retailers, this essentially means an extended shopping period and at better pricing, which may have a positive impact on margins/profitability.   


5 Retailers with Zacks #1 (Strong Buy) Ranks

Abercrombie & Fitch Company (ANF Quick QuoteANF ) : This is a specialty retailer of premium, high-quality casual apparel for men, women and children through a network of approximately 850 stores across North America, Europe, Asia and the Middle East.

The shares carry a value-growth-momentum (VGM) Score of A.

Revenue and earnings in the year-ending Jan 2022 are expected to grow 20.5% and 702.7%, respectively. Estimates for 2022 and 2023 are up 31.7% and 26.0%, respectively, in the last 30 days. The estimate for the current quarter is up 18.9%.  


The shares trade at 9.22X P/E, below the 21.58X of the S&P 500 and its own median value over the past year. So they are cheap at these levels.

Best Buy Co., Inc. (BBY Quick QuoteBBY ) : A multinational specialty retailer of consumer electronics, home office products, entertainment software, communication, food preparation, wellness, heath, security, appliances and related services. The company operates in the United States and Canada.

The shares carry a value-growth-momentum (VGM) Score of A.

Revenue and earnings in the year-ending Jan 2022 are expected to grow 9.5% and 25.8%, respectively. Estimates for 2022 and 2023 are up 16.9% and 8.9%, respectively, in the last 30 days. The estimate for the current quarter is up 35.5%. 


The shares trade at 11.29X P/E, below the S&P 500 and its own median value of 14.61X over the past year. So they are currently going rather cheap.

Signet Jewelers Ltd. (SIG Quick QuoteSIG ) : It is a leading retailer of diamond jewelry, and also sells watches and other products. The company generates most of its revenue in North America although it has operations across the U.S., Canada, U.K., the Republic of Ireland and the Channel Islands.

The shares carry a value-growth-momentum (VGM) Score of A.

Revenue and earnings in the year-ending Jan 2022 are expected to grow 33.0% and 295.3%, respectively. Estimates for 2022 and 2023 are up 21.6% and 11.6%, respectively, in the last 30 days. The estimate for the current quarter is up from a loss of 20 cents to a penny of profit. 


The shares trade at 10.18X P/E, below the S&P 500 and its own median value of 12.50X over the past ear. So they are cheap.

Kohls Corp. (KSS Quick QuoteKSS ) : It is a moderately-priced U.S. based department store chain that operates through 1,100 specialty department stores across 49 states, an e-commerce site in the U.S. and the Kohl’s app.

The shares carry a value-growth-momentum (VGM) Score of A.

Revenue and earnings in the year-ending Jan 2022 are expected to grow 20.6% and 603.3%, respectively. Estimates for 2022 and 2023 are up 43.3% and 28.0%, respectively, in the last 30 days. The estimate for the current quarter is up 113.3%. 


The shares trade at 8.51X P/E, below the S&P 500 and its own median value of 18.53X over the past year.

Citi Trends, Inc. (CTRN Quick QuoteCTRN ) : a leading value-priced retailer of urban fashion apparel and accessories including nationally recognized brands, private-label products and a limited assortment of home décor items. The company primarily targets fashion conscious African-American customers, offering branded merchandise at about 20% to 70% discount compared with the regular prices at department and specialty stores.

The shares carry a value-growth-momentum (VGM) Score of A.

Revenue and earnings in the year-ending Jan 2022 are expected to grow 29.0% and 173.1%, respectively. Estimates for 2022 and 2023 are up 30.0% and 23.5%, respectively, in the last 30 days. The estimate for the current quarter is up 45.5%. 

The shares trade at 10.14X P/E, below the S&P 500 and its own median value of 17.37X since it started trading in January this year.

Year-to-Date Price Performance

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