Stymied by the inability of cheap gasoline and job creation to perk up March retail sales, investors are now busy scanning retail stocks in their portfolio. With increased consumer confidence, the retail space was charged up but it did not hear the cash registers jingle despite the early Easter. Data compiled by the Retail Metrics revealed that retail sales grew a marginal 0.5%. Analysts had expected an increase of 1%.
Market pundits believe that unfavorable weather conditions, the unexpected slowdown in fourth-quarter 2014 GDP growth rate to 2.2% and the West Coast port dispute were the reasons behind the subdued March retail sales performance. Moreover, industry experts believe that sales in April may be soft due to the absence of Easter-related sales that benefited last year.
Thomson Reuters also highlights that same-store sales rose 0.3% (ex-drugstores), faring better than its expectation of 0.1%. However, including drug stores, same-store sales advanced 1.1%, in-line with the final estimate. This multinational mass media and information firm informed that a number of retailers fell short of their same-store sales estimates. The following table will give a fair idea of the performance of some retailers such as Costco Wholesale Corp. COST, The Buckle, Inc. BKE,The Gap, Inc. GPS, L Brands, Inc. LB and Zumiez, Inc. ZUMZ.
Companies |
March Same-Store Sales |
Same-Store Sales Estimates |
The Buckle, Inc. (BKE) |
-0.5% |
0.7% |
Costco Wholesale Corporation (COST) |
-2.0% |
-1.2% |
The Gap, Inc. (GPS) |
2.0% |
0.6% |
The Cato Corporation (CATO) |
12.0% |
4.0% |
L Brands, Inc. (LB) |
9.0% |
6.0% |
Zumiez, Inc. (ZUMZ) |
5.5% |
6.4% |
Rite Aid Corporation (RAD) |
4.3% |
5.3% |
Source: Thomson Reuters |
The above comparable-store sales data may for a moment compel you to relook at your portfolio and get rid of the underperforming stocks. This is the easiest way to do away with stocks that are currently losing momentum. But such a strategy does not pay off in the future, as market sentiment is influenced by a number of events. But you can be a frontrunner and a winner using the Zacks’ formula of a profitable mix.
Profitable Mix: Top Zacks Rank + Positive Earnings ESP + Long-term EPS Growth Rate of 10% or More
A favorable rank indicates positive estimate revisions by analysts optimistic on the future performance of companies. Moreover, Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
For investors seeking to apply this strategy to their portfolio, we have highlighted three stocks that possess a profitable mix. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%. It might be a good idea to add market outperformers in the present investment landscape.
Prominent Picks
Jack in the Box Inc. JACK is a Zacks Rank #1 (Strong Buy) stock having an Earnings ESP of +1.52%. The current Zacks Consensus Estimate for the second quarter of fiscal 2015 is 66 cents a share, portraying 30.3% growth from the prior-year quarter. The San Diego-based quick-service restaurant operator registered an average positive earnings surprise of 5.2% over the trailing four quarters, and has a long-term earnings growth rate of 16.3%. The company is expected to report on May 13.
The Kroger Co. KR is a Zacks Rank #1 stock having an Earnings ESP of +0.83%. The current Zacks Consensus Estimate for first-quarter fiscal 2015 is $1.20 per share, portraying 10.3% growth from the prior-year period. This Cincinnati-based grocery retailer registered an average positive earnings surprise of 8.5% over the trailing four quarters, and has a long-term earnings growth rate of 10.2%. The company is expected to report on June 18.
Whole Foods Market, Inc. WFM is a Zacks Rank #2 (Buy) stock, with an Earnings ESP of +2.38%. The current Zacks Consensus Estimate for second-quarter fiscal 2015 is 42 cents a share, displaying an increase of 11.5%. This Austin, TX-based retailer of natural and organic foods registered an average positive earnings surprise of 2.4% over the trailing four quarters, and has a long-term earnings growth rate of 13.4%. The company is expected to report on May 6.
Bottom Line
Who doesn’t want a portfolio of stocks that have the potential to outperform and beat earnings estimates? You can use Zacks Stock Screener to find other stocks with this winning combination.
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