Some of the market-disturbing factors that resulted in severe volatility in U.S stock markets in September are persisting. The first two trading days of October witnessed this with an impressive rally on the first day followed by a sharp decline in the next trading session.
Volatility is likely to continue in October primarily depending on the movement of the yield curve of the U.S. government bonds of different maturity, global supply-chain disruptions and the pace of global economic recovery, especially that of China, the largest trading partner of the United States.
Wall Street Is No Longer Overvalued
The fourth quarter of any year is generally considered favorable to Wall Street, notwithstanding the fluctuating trading pattern of October. Also, September’s market rout has eliminated the overvaluation in U.S. stock markets — one of the major investor concerns —.to some extent.
Last month, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — plummeted 4.3%, 4.8% and 5.3%, respectively. The Dow and the S&P 500 are currently down around 5% from their recent closing highs recorded on Aug 16 and Sep 2, respectively. The Nasdaq Composite slid nearly 7.5% from its recent closing high registered on Sep 7.
At present, more than half of the stocks within the S&P 500 Index are trading at less than 10% from their 52-week highs and 71 stocks are trading at more than 20% discount to their 52-week highs.
Some of these stocks are U.S. retail bigwigs with a favorable Zacks Rank. Investment in these stocks should be profitable in the near term as we are entering the holiday sales season.
Impressive Projections for Holiday Sales 2021
On Sep 14, CNBC reported strong projections for holiday retail sales given by several market researchers. Per the report, Deloitte forecast holiday retail sales in 2021 to surge 7-9% year over year to reach $1.28 to $1.3 trillion during the November to January timeframe. Out of the total, e-commerce sales are likely to soar 11-15% year over year to $210-$218 billion.
Mastercard SpendingPulse estimated that U.S. retail sales would surge 7.4% year over year in 201 from Nov 1 to Dec 24. In-store sales are likely to rebound this year with an expected jump of 6.6% year over year supported by persistent strong demand. Moreover, Bain projected that U.S. retail sales would grow 7% year over year between November and December 2021.
Additionally, KPMG expects U.S. holiday retail sales to grow 7% year over year in 2021. The KPMG survey revealed that on average, U.S. retailers expect online sales to grow 35% year over year this year.
The last available data from the Department of Commerce showed that the U.S. retail sales rebounded to the positive territory with a gain of 0.7% in August after plummeting 1.8% in July. Core retail sales (excluding auto sales) jumped to 1.8% in August compared with a drop of 1% in July.
Despite the growing threat of the Delta variant, in absolute term, retail sales climbed 15.1% year over year in August. Retail sales are likely to jump in the fourth quarter as new cases of the Delta variant fell sharply in September.
Our Top Picks
We have narrowed down our search to five U.S. retail bigwigs from the S&P 500 stable that are currently trading at more than 10% discount to their 52-week highs. These stocks have strong growth potential for the rest of 2021 and have seen solid earnings estimate revisions in the last 60 days.
Moreover, these companies are regular dividend payers which will act as an income stream during the market’s downturn. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past month.
Image Source: Zacks Investment Research
Best Buy Co. Inc. (BBY – Free Report) operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company operates through two segments — Domestic and International.
Demand for technology products and services remains strong. Solid consumer spending ability backed by government stimulus and high savings is bolstering demand. Strong omni-channel efforts aided growth in the company’s digital sales, in the domestic channel.
This Zacks Rank #1 company has an expected earnings growth rate of 25.8% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings improved 1.7% over the last 30 days. The stock is currently trading at 18% below its 52-week high and has a dividend yield of 2.66%.
The TJX Companies Inc. (TJX – Free Report) is benefiting in every major category as well as region for HomeGoods and Home Sense. It is also benefiting from its robust store and e-commerce growth efforts. The company remains committed to boosting growth through effective marketing initiatives and loyalty programs.
This Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for earnings for current-year earnings improved 0.7% over the last 30 days. The stock is currently trading at a discount of 13.5% to its 52-week high and has a dividend yield of 1.56%.
Walmart Inc. (WMT – Free Report) has been gaining from its sturdy comparable store sales record, which in turn is being driven by its constant expansion efforts and splendid e-commerce performance. Walmart has been undertaking several efforts to enhance merchandise assortments.
The company stays focused on store remodeling, in an attempt to upgrade them with advanced in-store and digital innovations. Walmart’s e-commerce business and omni-channel penetration have been increasing, all the more amid pandemic-led social distancing. The company is taking several e-commerce initiatives, including buyouts, alliances, improved delivery and payment systems.
This Zacks Rank#2 company has an expected earnings growth rate of 15.5% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 6.2% over the last 60 days. The stock is currently trading at a discount of 11.7% to its 52-week high and has a dividend yield of 1.61%.
Starbucks Corp. (SBUX – Free Report) has benefited from initiatives with respect to opening stores in new and existing markets, remodeling existing stores, deploying technology, controlling costs and aggressive product innovation and brand building.
Starbucks is strengthening its product portfolio with significant innovation around beverages, refreshments, health and wellness, tea and core food offerings. It is leaning toward fast-growing categories like Cold Brew, Draft Nitro beverages, and plant-based modifiers, including almond, coconut, and soy milk alternatives. Apart from the numerous beverage innovations, Starbucks has also been making an effort to offer more nutritional and healthy products to its customers.
This Zacks Rank#2 company has an expected earnings growth rate of 14.8% for the current year (ending September 2022). The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 30 days. The stock is currently trading at a discount of 11.8% to its 52-week high and has a dividend yield of 1.59%.
Tapestry Inc. (TPR – Free Report) provides luxury accessories and branded lifestyle products in the United States, Japan, China, Hong Kong, Macau, Taiwan, Europe, Canada, South Korea, Malaysia, Singapore, Australia, and New Zealand. It operates through three segments: Coach, Kate Spade, and Stuart Weitzman.
This Zacks Rank#2 company has an expected earnings growth rate of 12.5% for the current year (ending June 2022). The Zacks Consensus Estimate for current-year earnings improved 2.8% over the last 30 days. The stock is currently trading at a discount of 23.5% to its 52-week high and has a dividend yield of 2.63%.
Read More: 5 S&P 500 Retail Bigwigs to Buy at an Attractive Valuation