5 Top Retail Stocks to Buy on Booming Consumer Confidence

American consumers are now the most confident since 2000. A healthy job growth and a strong economic outlook bolstered consumers’ sentiment. 

Since Americans gained optimism on the economy, things have been looking up for retailers. Stocks of retail companies are well poised to grow on signs of renewed consumer spending strength.

Consumer Confidence Hasn’t Been This High Since 2000

U.S. consumer confidence soared to its highest in 18 years this month, per the Conference Board, a business research organization. The consumer confidence index had climbed to 138.4 this month from an upwardly revised 134.7 in August. Thus, the key economic indicator that measures attitudes on future economic prospects registered its best reading since September 2000 and is not too far from the all-time high of 144.7 reached that year.

People’s confidence in the present situations improved from 172.8 last month to 173.1 this month, the highest since 2000. The future expectations index also moved up from 109.3 to 115.3.

 

The Conference Board’s survey remained consistent with the latest University of Michigan’s consumer sentiment report for the month of September. The preliminary report showed that the consumer sentiment index came in at 100.8, the second-highest level since 2004.

What Drove Confidence?

Consumers’ optimism was largely driven by robust job growth and strength in the overall economy. The current unemployment rate is now at a nearly two-decade low, while the U.S. economy added jobs for 95 successive months in August, the longest stretch on record. In fact, the U.S. economy has been able to produce an average of 207,000 new jobs per month so far this year, faster than the hiring spree in both 2016 and 2017.

Americans are all the more comfortable about their well-being as the nine-year economic expansion continues to go strong. The Conference Board’s Leading Economic Index indicated a 3% or more growth rate in GDP in the final two quarters of the year and is on track to hit the Trump administration’s annual growth target of 3%. If that happens, it would be the best yearly performance since 2005, two years before the Great Recession. 

The booming economy has already expanded at a seasonally adjusted rate of 4.2% in the April-June quarter, per the Commerce Department. This was slightly higher than the initial 4.1% read and also the strongest since a 4.3% annual gain recorded in the third quarter of 2014.

Gross domestic income (GDI), an alternative measure of economic growth, also increased at a 1.8% annualized rate in the second quarter. Thus, the average of GDP and GDI, also known as the gross domestic output and considered to be a better measure of economic activity, expanded at an encouraging rate of 3% in the April-June quarter (read more: Consumers Comfort Rises as Economy Gains Steam: 5 Winners).

 

Why Does Consumer Confidence Matter?

Such a record-high consumer confidence number is a significant reading since it has been, historically, good at predicting consumer spending for the next three to six months. The more the confidence households generate the more will they spend. Notably, consumer spending accounts for roughly 70% of the U.S. economy, which isn’t a nominal number.

These numbers influence companies’ production schedule. In fact, retailers are mostly affected as spending plays a major role in determining revenues. Lynn Franco, director of economic indicators at the Conference Board, added that “these historically high confidence levels should continue to support healthy consumer spending, and should be welcome news for retailers as they begin gearing up for the holiday season.”

5 Best Retail Stocks to Buy Now

Since retailers are positioned to benefit from this stellar reading on confidence level, picking stocks from the same will be a smart move.

We have, thus, selected five solid retail stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also boast of 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.

Tilly's, Inc. TLYS retails casual apparel, footwear, and accessories for young men and women, and boys and girls in the United States. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has risen 11.1% in the last 60 days. The company’s projected growth rate for the current year is 38.5%, while the Retail - Apparel and Shoes industry is expected to rise 12.9%.

The TJX Companies, Inc. TJX operates as an off-price apparel and home fashions retailer. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has increased 1.4% in the last 60 days. The company’s projected growth rate for the current year is 21.3%, while the Retail - Discount Stores industry is expected to rise 18%.

Ruth's Hospitality Group, Inc. RUTH develops, operates, and franchises fine dining restaurants under the Ruth's Chris Steak House name. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has advanced 2.2% in the last 60 days. The company’s projected growth rate for the current year is 26.4%, while the Retail - Restaurants industry is expected to rise 8.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Movado Group, Inc. MOV designs, develops, sources, markets, and distributes fine watches in the United States and internationally. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has improved 4.6% in the last 60 days. The company’s projected growth rate for the current year is 26%, while the Retail - Jewelry industry is expected to rise 7.1%.

Zumiez Inc. ZUMZ operates as a specialty retailer of apparel, footwear, accessories, and hard goods for young men and women. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased nearly 5% in the last 60 days. The company’s projected growth rate for the current year is 53.6%, while the Retail - Apparel and Shoes industry is expected to rise 12.9%.

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