There seems to be a lot of cheer in the Retail – Discount Stores industry that has surged close to 46% in a year’s time, with quite a few companies cutting a promising figure. The industry, which comfortably crushed the S&P 500’s rise of almost 19%, is riding on strategic endeavors by companies and a flattering economic scenario.

The economic landscape is being shaped by a strong labor market, improving consumer sentiment and benefits from tax reforms. It also goes without saying that consumer spending — which accounts for more than two-third of the economic activity — is likely to remain strong. For obvious reasons, retailers are the direct beneficiaries. In fact, the National Retail Federation’s projection of a tick-up in U.S. retail sales of at least 4.5% this year is quite reassuring for retailers.

Such trends along with companies’ efforts to keep pace with evolving shopping patterns are likely to keep players in the Retail – Discount Stores industry (ranked among the top 22% out all Zacks industries) in the win-win zone.

Arrows in Discount Retailers’ Quiver

Markedly, discount retailers are trying all means to retain and strengthen customer base in the face of mounting competition, through effective pricing, brand enhancements, store expansion and remodeling, and efforts to bolster online sales. Significant among the omnichannel efforts is the companies’ focus on expanding in the online grocery space through same-day deliveries and upgraded payment systems. However, efforts to combat competition entails high promotional costs, which along with an aggressive pricing strategy, escalated wage expenses and increased merchandise costs have been eating into margins.

Nonetheless, there are some renowned industry players which have countered these hurdles and performed even better than the industry, courtesy of the aforementioned positives. To top it, these firms have raised their views for the current fiscal, which instills hope on the companies’ prospects.

3 Musketeers

On that note, we have brought into focus three major Retail – Discount Stores players, which have delivered a solid bull run on strong fundamentals and encouraging outlooks. These stocks not only carry a Zacks Rank #2 (Buy) but also flaunt a Growth Style Score of A. Growth stocks have solid earnings or revenue growth potential, which should lead to higher stock prices.

Minnesota-based Target Corporation (TGT - Free Report) is a solid bet.  The company, which has delivered an average positive earnings surprise of 1.3% in the trailing four quarters, is trying all means to rapidly adapt to the changing retail ecosystem. Toward this end, Target is deploying resources to enhance omni-channel capacities, coming up with new brands, remodeling or refurbishing stores and expanding same-day delivery options to expedite the shopping process. All these bode well for the stock that has soared 52.3% in a year. Notably, Target carries a long-term growth rate of 6.7% and has seen its estimates for the current fiscal go up by 7 cents to $5.37 over the past 30 days. 

You may also consider Burlington Stores, Inc. (BURL - Free Report), which has seen its stock go up a whopping 80% over the past year. This New Jersey-based retailer flaunts a robust long-term growth rate of 20.2% and has topped earnings estimates consistently for 19 straight quarters. Further, we are optimistic about Burlington, given its superb strategic initiatives, which have been driving its impressive comparable store sales and margins trend. Estimates of this company have gone up by 3.7% to $6.21 for the current fiscal over the past 30 days.

Investors can also bet on The TJX Companies, Inc. (TJX - Free Report), which has returned close to 51% over the past year. This off-price retailer has been riding on its spectacular comps record, which in turn is benefiting from continued rise in consumer traffic and strong merchandising policies. These factors along with TJX Companies’ off-price model, strategic store locations and impressive brands have been driving its store and online performance. These strategies have helped the company deliver positive earnings surprises for three consecutive quarters now. Also, the company, which has seen its estimates for the current fiscal go up by 4 cents to $4.89 over the past 30 days, carries a long-term growth rate of 10.6%.