4 Retail Stocks To Buy Despite Soft February Sales

Strong Service Sector Growth

Institute for Supply Management (ISM) data for the month of February showed that the non-manufacturing index (NMI) was 59.5, topping analysts’ estimates of 58.4. This was also more than an average of 57 for all of 2017. NMI reading above 49% indicates an expansion for the broader economy.

The non-manufacturing index saw uninterrupted expansion for the 97th consecutive month and indicated that the broader economy is on track for steady growth this year. Expansion was witnessed in sectors related to education services, transportation, and warehousing, utilities, real estate, finance & insurance, healthcare, construction, mining, retail trade, agriculture and information. Service spending trends thus look rosier, which should aid U.S. retail sales in the first quarter of 2018.  

Alongside, the environment for the retail sector remains favorable against the backdrop of economic strength underpinned by gradual wage acceleration, a 17-year low unemployment rate and rising consumer confidence, and a reduction in tax rate.  

The Retail-Wholesale sector (one of the 16 Zacks sectors) has put up a good show by advancing roughly 10.7% in the last three months, comfortably outperforming the S&P 500’s growth of approximately 3.1%.

Top 4 Picks

Given the prospective growth of retail sales, investors may consider buying sound stocks from this space. We have, thus, selected four stocks that should be accretive to your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Our search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Dollar General Corp. (DG - Free Report) a discount retailer in the United States. The company separates its merchandise into four categories, which include highly consumable, seasonal, home products and basic clothing. Dollar General has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings rose 6.5% in the last 60 days.

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