It is time to rejuvenate your portfolio once again, as we gradually head toward second-quarter earnings season. Nonetheless, the unpredictability which is so characteristic of the market continues to haunt every investor. Things have not changed much from the first quarter which was defined by a strong dollar, weakness in the energy sector and global growth issues.
However, a little groundwork will definitely give a fair idea that the economy isn’t in such a bad shape as was perceived when the “second estimate” released by the Commerce Department revealed that GDP shrank 0.7% in first-quarter 2015 – harsh winter weather, strikes at Western Coast ports, a stronger dollar hampering exports, and decline in business investment were cited as the reasons behind the meltdown.
Instead, gradual recovery in the housing market, the strengthening manufacturing sector, an improving labor market and lower gasoline prices are favoring the economy. Moreover, progress related to Greece's debt deal may also support growth. Industry analysts predict that the encouraging economic data will be reflected in interest rate hike sometime later in the year. However, they are keeping their fingers crossed regarding markets' reactions.
Coming to numbers, recent data shows that unemployment claims dropped by 12,000 for the week ended Jun 13, to a seasonally adjusted 267,000 versus the consensus estimate of 276,500, while the unemployment rate is hovering around 5.5%. Consumer confidence – a key determinant of financial health – is also improving, making the future look brighter. In fact, the preliminary data released by the University of Michigan highlighted that the consumer sentiment index has jumped to 94.6 in June from the May reading of 90.7.
However, despite a convincing economic recovery, consumer spending remained flat in April, following a 0.5% increase in March. Consumer spending, which accounts for over two-thirds of the U.S. economic activity, decelerated to a rate of 1.8% in first-quarter 2015 from 4.4% in fourth-quarter 2014.
It is quite apparent that market sentiment is influenced by a number of events. Well, now there are two choices — either be a spectator and wait for a convincing economic climate, or be a front-runner by identifying stocks that have the potential to outperform even when market conditions are not congenial. However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the growth perspective.
To make the task easy, Zacks has designed the new Style Score System. The attractiveness of a stock as an investment option is confirmed by its Growth Style Score of “A” (or “B”). The Growth Style Score combines conventional growth metrics with a thorough analysis of the company’s income statement, balance sheet and statements of cash flows to evaluate its financial health and the sustainability of its growth trajectory. Our research shows that stocks with Growth Style Scores of A or B when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential.
3 Retail Growth Picks
We have identified 3 Retail Growth Stocks which have incredible potential in the near term and a positive Zacks Earnings ESP:
We suggest investing in Aaron's, Inc. AAN, a specialty retailer of furniture, consumer electronics, computers, appliances, and household accessories, with a Growth Score of “A.” This Zacks Rank #1 stock has a long-term earnings growth rate of 12%. The Atlanta, GA-based company delivered an average positive earnings surprise of 12.2% over the trailing four quarters, and has an Earnings ESP of +8.70%. It is expected to witness earnings growth of 27.5% in 2015 and 16.2% in 2016. The Zacks Consensus Estimate too has moved up over the past 60 days.
Lithia Motors Inc. LAD, which operates as an automotive franchisee and retailer of new and used vehicles, is another solid bet, with a Growth Score of “B.” The stock holds a Zacks Rank #2, and has a long-term earnings growth rate of 22.4%. Based in Medford, OR, Lithia Motors delivered an average positive earnings surprise of 10.1% over the trailing four quarters, and has an Earnings ESP of +0.61%. The company is expected to witness earnings growth of 25% in 2015 and 10.6% in 2016. The Zacks Consensus Estimate too has been portraying an uptrend over the past 60 days.
Another Zacks Rank #2 stock that investors may look forward to is BJ's Restaurants, Inc. BJRI, with a Growth Score of “A.” This operator of casual dining restaurants has an Earnings ESP of +2.56%. An average positive earnings surprise of 44.5% over the trailing four quarters and a long-term earnings growth rate of 20.2% make this Huntington Beach, CA-based company quite an attractive investment option. The company is expected to witness earnings growth of 41.1% in 2015 and 21.2% in 2016. The Zacks Consensus Estimate too has trended upward over the past 60 days.
Bottom Line
Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 or #2, which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions. A sturdy portfolio always gives favorable returns.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
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