Mon Feb 09 2015
Live Index (1446 articles)

3 Stocks to Gain as Retail Boosts January Job Data

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The U.S. economy has created 257,000 new jobs in January, beating the consensus estimate of 234,000. This was the 11th consecutive month in which the economy generated more than 200,000 jobs, its longest such stretch in more than two decades. Notably, the retail trade sector emerged as the biggest recruiter in January.

Wage Growth, Participation Rate Up

Most significantly, the average hourly earnings increased 0.5%, or 12 cents, to $ 24.75 in January, stronger than the consensus estimate of 0.3% gain. For those studying the employment situation, wage growth has been a major cause for concern this year. Year-on-year growth in average hourly wages came in at 2.2% in January.

Meanwhile, the job additions for November and December were revised upward from 353,000 and 252,000 to 423,000 and 329,000, respectively. November’s tally was the highest since May 2010.

Moreover, labor force participation rate increased 0.2% in January to 62.9 after declining to its lowest level since 1978 in December. Also, civilian labor force increased by 703,000 over last month. Increase in civilian labor force was one of the main reasons behind the deteriorated unemployment rate. The unemployment rate increased marginally to 5.7% in January from 5.6% in December.

January’s Consumer Confidence Survey also signaled that consumers remained bullish on labor market conditions. The report showed that 20.5% of the people who participated in the survey believed jobs are “plentiful” in the economy. This was an improvement over the 17.2% recorded in December.

Retail Employment

Retail sector generated 46,000 new jobs in January, highest among other major sectors. Sporting goods, hobby, book and music stores, motor vehicle and parts dealers, and non-store retailers were the major contributors behind employment generation in this sector.

Increase in employment in the retail sector signaled rising demand for such products. The rise in consumer confidence in January also supported this fact. According to recent Conference Board data, the Consumer Confidence Index increased to 102.9 in January from 93.1 in December. Moreover, decline in oil prices, improving labor market and stable economic scenario helped retail sector to attract a large portion of consumers’ spending.

Meanwhile, the World Bank has said that the slump in oil prices has helped the U.S. economy because it has increased purchasing power of consumers. The World Bank sees the U.S. expanding at 3.2%, up from prior estimate of 3%. Also, the IMF upgraded its 2015 growth rate estimate for the U.S. to 3.6% from the previous forecast of 3.1%.

Our Choices

Banking on favorable Zacks Rank and strong fundamentals, here are 3 retail stocks that may benefit from the improved sector dynamics:

Asbury Automotive Group, Inc. (ABG – Snapshot Report) is one of the largest automotive retailers in the United States. They sell, finance and service a diverse range of foreign and domestic automobile brands. On Feb 4, the Zacks Rank #1 (Strong Buy) company reported fourth quarter earnings per share of $ 1.07, beating the Zacks Consensus Estimate of $ 1.01.

The company has a strong next year EPS growth estimate of 16.9%. Asbury Automotive also has a solid forward PE ratio of 16.04. The Zacks Consensus Estimate for the current year EPS has been revised 2.6% upward over the last two months.

Express Inc. (EXPR – Snapshot Report) is a specialty retailer of women’s and men’s apparel in the United States. The company operates retail outlets in high-traffic shopping malls, lifestyle centers and street locations across the United States. The Zacks Rank #2 (Buy) company also sells its products through its e-commerce website, express.com.

Express has strong next year EPS growth estimate of 26.7%. The company also has an impressive forward PE ratio of 14.36. The Zacks Consensus Estimate for the current year EPS has been revised around 4.1% upward over the last two months.

Brinker International, Inc. (EAT – Analyst Report) owns, operates, franchises, or is involved in the ownership of restaurants under the names including Chili’s Grill & Bar, Romano’s Macaroni Grill and Maggiano’s Little Italy. On Jan 29, the Zacks Rank #2 (Buy) company posted fiscal second quarter adjusted earnings of 71 cents per share, ahead of the Zacks Consensus Estimate of 68 cents.

The company has impressive next year EPS growth estimate of 15.3%. The company also has a strong forward PE ratio of 19.25. The Zacks Consensus Estimate for the current year EPS has been revised almost 1% upward over the last two months.

Bottom Line

The encouraging jobs report reconfirms that the U.S. economy is making an impressive recovery and is likely to maintain this pace in the near future. Retail employment was one of the major catalysts behind January’s strong job report, indicating increase in demand. In this favorable scenario, these three retail stocks are likely to be profitable investment choices.

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