On Jul 1, the Department of Commerce released retail sales figures for May, which exceeded expectations by a wide margin. The report comes on the back of strong payroll numbers for June and an increase in inflation. Together, this bunch of bullish data has successfully addressed lingering concerns about the state of U.S. economic expansion.

June marks the third consecutive gain for the retail sales metric, all of which have been rather substantial. This series of data indicates that consumer spending likely picked up in the second quarter after increasing at its most sluggish pace for the year in the January-March period. With American consumers remaining confident, it makes good sense to invest in select retail stocks.

Sales Surge Marks Third Consecutive Increase

In June, retail sales increased 0.4%, blowing past the consensus estimate of 0.2%. U.S. consumers purchased more motor vehicles and a slew of other goods, including building materials and furniture. Auto sales advanced 0.7%, identical to the increase experienced in May. Meanwhile, service station sales dropped 2.8%, reflecting falling gasoline prices.

Retail sales also increased by 3.4% from the same period last year. Additionally, core retail sales, which exclude autos, gasoline, food services, and building materials, increased 0.7%. This metric most closely corresponds to the consumer spending component of GDP. Core retail sales were revised upward for May to reflect a 0.6% increase rather than the previously reported 0.4%. 

 Nonstore Retailers, Restaurants Lead Gains

In June, online and mail-order sales led the gains, increasing 1.7%, which was in line with May’s increase. This was closely followed by sales at food services and drinking places, which increased by 0.9%. Miscellaneous store retailers also experienced a 0.6% uptick in sales.

Significant gains were also experienced in the health and personal care category, receipts for which increased 0.5%. Sales for building materials and clothing and accessories increased by an identical amount. Food and beverage stores, and furniture and home furnishing stores also witnessed a 0.5% increase in receipts.

Our Choices

Robust retail sales numbers for June have successfully dispelled recent fears about the U.S. economy. Strong consumer spending is now likely to extend the current economic expansion even further. The retail sector will gain significantly from such trends.

Investing in retail stocks looks like a smart option at this point. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and good VGM Score.

Expedia, Inc. (EXPE - Free Report) is one of the largest online travel companies in the world.

Expedia has a VGM Score of A. The company’s projected growth rate for the current year is 19.5%.

Casey's General Stores (CASY - Free Report) operates convenience stores under the Casey's and Casey's General Store names in 16 Midwest states, mainly Iowa, Missouri, and Illinois.

Casey's has a VGM Score of A. The company’s projected growth rate for the current year is 6.4%. The Zacks Consensus Estimate for the current year has improved by 1.3% over the past 30 days. 

Zumiez Inc. (ZUMZ - Free Report) is a specialty retailer for a range of apparel, footwear and accessories.

Zumiez has a VGM Score of B. The company’s projected growth rate for the current year is 5.6%. The Zacks Consensus Estimate for the current year has improved by 2.2% over the past 60 days.  

The Buckle, Inc. (BKE - Free Report) is a retailer of casual apparel, footwear and accessories.

The Buckle has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 4.1% over the past 30 days. 

Papa John's (PZZA - Free Report) operates and franchises pizza delivery and carryout restaurants in the United States and other specific international markets.

Papa John's has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 2.7% over the past 60 days.