4 Stocks to Buy Amid Growing Challenges in the Retail Sector

People are spending cautiously amid rising prices but higher demand is forcing them to make more purchases, helping the retail sector. The retail sector, which is counted among the first casualties of soaring prices, has so far put up a good show, with sales growing almost every month.

The economy is slowing but may not yet have slipped into recession as several sectors, including retail, have not yet succumbed to the inflationary pressure. In fact, they have shown steady growth amid this crisis. Given this scenario, retailers like Dollar General Corporation DG, Dollar Tree, Inc. DLTR, Costco Wholesale Corporation COST and Insight Enterprises, Inc. NSIT are likely to do well in the near term.

Retail Sales Continue to Grow

The retail sector has put up an impressive show this year despite challenges like surging prices and supply-chain crisis. According to the latest Mastercard SpendingPulse, retail sales grew 11.2% year over year in July.

Economists have cited surging fuel and food prices as the reason for steady growth in retail sales. That, however, may not be the case as excluding automotive and fuel, retail sales rose 9% in July.

People have been negotiating their purchases amid growing prices but higher demand for consumer goods has been helping the retail sector flourish. Grocery sales jumped 16.8% year over year in July. Although higher prices played a role in this jump, demand for groceries has also increased over the year.

Other segments like apparel recorded a 16.6% jump in sales, while jewelry sales grew 18.6% year over year in July.

In-store sales have been rebounding at a fast pace after slowing for the past two years due to the pandemic. This saw online sales slowing down over the past few months. However, both in-store sales and e-commerce recorded solid growth in July.

In-store sales grew 11.1% year over year in July and 13.9% from 2019. E-commerce sales grew 11.7% year over, year, its first double-digit growth since December.

Retail Sector Sustaining Solid Growth

The Fed has been aggressively raising interest rates in a bid to cool surging inflation. The U.S economy shrank 1.3% in the second quarter, recording its second consecutive quarter of decline. In technical terms, many consider it a recession.

However, the economic data and actual situation still doesn’t indicate that. Although at a slower pace, factory orders for consumer durable goods and manufacturing activity are still on the rise. This indicates that there is still high demand for consumer goods, which eventually has been benefiting the retail sector.

Moreover, inflation may have started cooling off finally. The latest Consumer Price Index (CPI) numbers remained unchanged from June’s reading. On a year-over-year basis, CPI for July rose 8.5% against expectations of a jump of 8.7%. Core CPI, which excludes volatile food and energy price, rose 0.3% month over month, a lot slower than June’s jump of 0.7%.

Also, the U.S. economy added 528,000 jobs in July, while the unemployment rate declined to 3.5%, touching the lowest level since 1969. Average hourly wages too increased by $0.15 per hour or 0.56% to $32.27. Higher employment and wages mean people will earn more, which will give them more purchasing power.

Our Choices

The retail sector is still performing well, and so long as demand for goods continues to grow, sales should be on the rise. This is thus the right opportunity to invest in retail stocks that have both a strong offline and online presence and boast of a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General Corporation is one of the largest discount retailers in the United States. DG offers a wider selection of merchandise, including consumable items, seasonal items, home products and apparel. Dollar General Corporation’s merchandise comprises national brands from leading manufacturers, as well as own private brand selections with prices at substantial discounts to national brands.

Dollar General Corporation’s expected earnings growth rate for the current year is 13.3%. The Zacks Consensus Estimate for Dollar General’scurrent-year earnings has improved 0.4% over the past 60 days. DG has a Zacks Rank #2.

Dollar Tree, Inc. is an operator of discount variety stores offering merchandise and other assortments. DLTR’s stores successfully operate in major metropolitan areas, mid-sized cities and small towns. Dollar Tree offers a wide range of quality everyday general merchandise in many categories, including housewares, seasonal goods, candy and food, toys, health and beauty care, gifts, party goods, stationery, books, personal accessories, and other consumer items.

Dollar Tree’s expected earnings growth rate for the current year is 40.5%. The Zacks Consensus Estimate for Dollar Tree’s current-year earnings has improved 4.2% over the past 90 days. DLTR has a Zacks Rank #2.

Costco Wholesale Corporation sells high volumes of foods and general merchandise (including household products and appliances) at discounted prices through membership warehouses. COST is one of the largest warehouse club operators in the United States. Costco Wholesale Corporation also operates e-commerce sites in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.

Costco Wholesale Corporation’s expected earnings growth rate for the current year is 18.2%. The Zacks Consensus Estimate for Costco’s current-year earnings has improved 0.3% over the past 60 days. COST has a Zacks Rank #2.

Insight Enterprises, Inc. is a global direct marketer of brand-name computers, hardware and software. NSIT is an Arizona-based publicly traded global technology company that focuses on business-to-business and information technology capabilities. Insight Enterprises markets to small-and-medium-sized businesses through a combination of a strong outbound telemarketing sales force, electronic commerce, electronic marketing and direct mail catalogs.

Insight Enterprises’ expected earnings growth rate for the current year is 22.3%. The Zacks Consensus Estimate for Costco’s current-year earnings has improved 7.7% over the past 60 days. NSIT has a Zacks Rank #1.

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
 
Dollar General Corporation (DG) : Free Stock Analysis Report
 
Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
 
Costco Wholesale Corporation (COST) : Free Stock Analysis Report
 
Insight Enterprises, Inc. (NSIT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research