Even though Halloween celebrations won’t begin until Saturday, retailers are already gearing up to welcome holiday shoppers. The National Retail Federation (NRF) said that it expects a 3.7% rise in sales during the holiday period. Several factors provide an optimistic outlook for retailers this time around. This includes favorable economic conditions and a push provided by online sales.

Retailers look poised to mop up gains from these encouraging trends. Thus, adding retail stocks to your portfolio may be a prudent decision at this time.

Encouraging Economic Conditions  

Oil prices continue to trend lower, creating more disposable income for the consumer. On Monday, the price of WTI crude oil dropped to its lowest level since Aug 10. Oversupply concerns and weakening global demand continue to weigh on oil prices.

Additionally, the job market also continues to show gradual improvement. September job additions came in lower than expected and average hourly earnings declined by a cent. However, the unemployment rate has come down to 5.1%, a significantly lower number. Meanwhile consumer confidence of low-income groups is at an all-time high.   

Online Sales to Rise

Estimates released on Monday by FedEx Corporation (FDX - Analyst Report) show that the company will possibly handle 317 million packages from the period starting from Black Friday and ending on Christmas. These represent record volumes and will be a 12.4% hike over the same time last year.

FedEx also said that it expects to see heightened activity around Cyber Monday, when online offers touch a yearly high as well as on the first two Mondays of December. The company expects to handle in excess of twice the packages it does on a normal day.

These estimates indicate that online shopping is expected to improve significantly. They are also in line with NRF predictions that online sales will see a 6% to 8% jump.

Major Trends

Total holiday spending is expected to increase by 3.7% to $630.5 billion. The trend of purchasing for oneself will increase according to the NRF survey of consumers conducted this month. Of those polled, 55.8% expect to purchase non-gift items, with the amount of the purchase increasing from $126.37 to $131.59.

Smartphones will play a major role in purchases this time around. Of the respondents polled, 21.4% said they will utilize smartphones to make holiday purchases. This figure is the highest in percentage terms since the survey began in 2011.

Our Choices

Several indicators show that retailers are expected to gain significantly during the holiday shopping period. An increase in disposable income and an improving labor market are important reasons for expectations that sales will increase.

The convenience provided by online purchases will also add to shopping volumes. This is why it may be a good idea to add retail stocks to your portfolio at this time.

We have narrowed down our search based on good Zacks Rank and other relevant metrics.

The Kroger Co. (KR - Analyst Report) is one of the nation’s largest grocery retailers. In addition, directly, or through subsidiaries or franchisee and operating agreements, Kroger runs 781 convenience stores and 327 fine jewelry stores, among other store formats.

Kroger has a Zacks Rank #2 (Buy) and projected growth for the current year is 12.8%. It has a P/E (F1) of 19.06 and its earnings estimate for the current year has increased 0.6% over the last 30 days.

Aaron's, Inc. (AAN - Snapshot Report) is engaged in the sales and lease ownership and specialty retailing of residential and office furniture, consumer electronics, home appliances and accessories.

Aaron's has a Zacks Rank #1 (Strong Buy) and expected earnings growth of 37.2% for the current year. It has a P/E (F1) is 16.19.

Build-A-Bear Workshop Inc. (BBW - Snapshot Report) is a retailer of stuffed animal toys and other such products.

Build-A-Bear Workshop has a Zacks Rank #1 (Strong Buy) and its estimated growth for the current year is 46.2%. The P/E (F1) is 13.44 and its PEG ratio of 0.67 is lower than the industry average of 1.26.

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA - Snapshot Report) provides one-stop shopping for prestige, mass and salon products and salon services.

ULTA Salon has a Zacks Rank #1 (Strong Buy) and projected growth for the current year is 20%. Its earnings estimate for the current year has increased 1% over the last 30 days.