3 Retail Stocks to Buy Before Christmas

So retailers must remain on their toes and continue their promotional events, free shipping on online purchases and heavy discounts.

Black Friday weekend did not turn out to be a blockbuster as retailers did not wait to adopt promotional strategies and showcased them weeks before. This took the charm away from the Thanksgiving weekend which is seen as the biggest shopping time only next to Christmas, wherein total spending might have declined 11.3%, according to National Retail Federation.

With the rebounding economy, falling unemployment rate and gasoline prices, higher consumer confidence and improving consumer spending, the retail space is brimming over with optimism this time, and retailers did not want to miss a single opportunity to cash in on consumers’ buying power. This prompted eye-popping discounts for the season quite early, targeting consumers with exclusive deals both online and in stores. The move benefited most retailers who went on to post better-than-expected comparable-store sales results for the month of November.

Data compiled by Retail Metrics revealed that comparable-store sales last month grew 5.2% (ex-drugstores), faring better than analysts’ expectation of 3%. International Council of Shopping Centers (ICSC) also highlights a 4.9% increase in retail spending for the month, which is quite commendable. The following table will give a fair idea of the performance of some retailers such as Costco Wholesale Corp. (COST – Analyst Report), The Gap, Inc. (GPS – Analyst Report), L Brands, Inc. (LB – Analyst Report) and Zumiez, Inc. (ZUMZ – Analyst Report).

The above table makes it obvious that the party is not yet over for retailers, and that the bullishness spread in the economy is driving up the consumer sentiment index that already reached its pinnacle this November to 88.8, according to University of Michigan and Thomson Reuters. The favorable economic numbers such as GDP growth rate of 3.9% and increase in consumer spending of 2.2% in the third quarter of 2014, and unemployment rate of 5.8% touching its lowest level in six years are rightly setting the stage for a cheerful Christmas party.

Competition for sure is going to be intense and the aggressive pricing may hurt margins to some extent. Only time will tell which retailer will emerge as the winner and who will bite the dust. But after all, at the end of this chicken game, the customer is the real king. Here, we present three retail stocks that could enrich your portfolio before you pack your luggage for Christmas holidays.

We suggest investing in Columbia Sportswear Co. (COLM – Snapshot Report), designer, marketer and distributor of active outdoor apparel, footwear, accessories, and equipment in the U.S., Latin America, the Asia Pacific, Europe, the Middle East, Africa and Canada. The stock holds a Zacks Rank #1 (Strong Buy) and has jumped 15% so far in the year.

Though the stock looks pricey with a forward P/E (price-to-earnings) multiple of 24.80, it should not disappoint investors given the company’s long-term expected earnings growth rate of 14.7%. This Portland, OR-based company delivered an average positive earnings surprise of 43% over the trailing four quarters. The company is expected to register earnings growth of 24.3% in 2014 and 19.3% in 2015.

Another stock that investors may look forward to is G-III Apparel Group, Ltd. (GIII – Snapshot Report), a manufacturer and marketer of women’s and men’s apparel, which sports a Zacks Rank #1. The stock trades at a forward P/E of 21.77x, a premium to the industry average but still looks attractive from an earnings growth perspective.

The company has a long-term earnings growth rate of 17.3% and has posted an average positive earnings surprise of 64.4% over the trailing four quarters. Share of this New York-based company has surged 32.8% year to date. The company is expected to register earnings growth of 16.4% in fiscal 2015 and 18.8% in fiscal 2016.

Hanesbrands Inc. (HBI – Analyst Report), a designer, manufacturer and seller of basic apparel in the U.S., is another stock to bet on. The stock carries a Zacks Rank #2 (Buy) and the company has a long-term earnings growth rate of 14.9%. Although the stock trades at a forward P/E of 20.03x, a premium to the industry average, it still looks attractive from an earnings growth perspective.

The shares of this Winston-Salem, NC-based company have rallied 60.9% year to date. The company had registered an average positive earnings surprise of 13.6% over the trailing four quarters. The company is expected to witness earnings growth of 44.5% in 2014 and 14.2% in 2015.

We believe that the above stocks boast strong fundamentals and growth prospects that can satisfy investors’ appetite for equity market winners.