3 strong retail stocks to buy now

After a promising pre-market, red swept across the board again today to kick off another week in the market. The Ukraine conflict, the lingering effects of COVID-19 and the Federal Open Market Committee (FOMC) plans were all major factors affecting performance with which we are all too familiar.

Although it’s too early to tell, there are several reasons why the market outlook for this week looks a bit brighter. Oil prices have continued to slide, diplomatic talks between Russia and Ukraine have continued and the FOMC’s decision to raise rates is no longer an uncertainty.

When market sentiment turns around the corner and fear recedes, many investment opportunities with less risk arise in these calmer waters. Here are three #1 (Strong Buy) retail stocks with high VGM scores that would be great additions to your portfolio in a rebounding market.

Kroger

Kroger Co. KR is one of the leading drug and food retailers currently residing in the Zacks Retail – Supermarkets industry. Based in Ohio, the company owns and operates retail names such as Kroger, Food 4 Less, Harris Teeter, Pick ‘n Save, Fred Meyers and others. KR has four types of formats for its stores, including combination stores, multi-department stores, market stores and price impact warehouses. As of January, Kroger Co. has nearly 2,750 stores in the United States.

Kroger shares, up 56% from a year ago, significantly outperformed the S&P 500 return of 7.5%. Price action was also the same for the most recent term; year-to-date, stocks have shown a much higher mix of defense and value than the S&P 500, rising 23% while the S&P 500 is down almost 12%. The chart below compares the performance of these 2 names over the past year.

Image source: Zacks Investment Research

Current quarter, current year and next year estimates have all seen positive revisions in the past 60 days. Six analysts raised their estimates for the current year, raising the consensus estimate’s trend nearly 7% to $3.66 per share. There was an estimate revision for the first quarter, increasing the trend by 6% to a consensus quarterly EPS estimate at $1.21. FY24 saw two upward revisions by analysts, raising the consensus annual EPS estimate by about 7% to $3.85.

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Kroger, currently on a meteoric earnings streak, has chained nine consecutive quarterly earnings beats dating back to March 2020. In its latest quarterly earnings, the company beat the $0.73 per share estimate from $0.18, this which represents a pleasant positive surprise of 25%. Over the past four quarterly reports, Kroger has enjoyed an average earnings surprise of 22%. As shown below, three of the retail giant‘s last four earnings surprises have exceeded 20%.

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Image source: Zacks Investment Research

Kroger has posted consistently strong earnings growth over the past term and has proven its ability to generate shareholder value over time by increasing quarterly dividends for the 15and consecutive year. KR’s estimates have seen a notable number of upward revisions over the past 60 days, its digital e-commerce platform is growing rapidly and sales have increased. Because of these factors, its #1 Zacks ranking (Strong Buy) and its high VGM score, I think this retail giant would be a great addition to your portfolio.

Target

Target TGT is the next retail stock that recently received favorable review action coupled with good growth prospects. The Minneapolis-based big-box retailer offers consumers a one-stop shop with an extensive catalog of products ranging from household essentials and electronics to toys and children’s clothing. Target has over 1,900 stores with operations in every state in the United States

Over the past year, shares of TGT have risen 17%. Using the S&P 500 as a benchmark, the retail giant significantly outperformed the general market by around 10%. Year-to-date, the company’s shares have also provided a slightly higher level of defense, falling around -9.5%. Below is a graph comparing performance over the past year.

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Image source: Zacks Investment Research

Notably, analysts have been rapidly revising estimates for the current year and next year over the past 60 days. For the current year, the consensus estimate trend rose nearly 10%, bringing full-year EPS estimates to $14.47 per share. The trend increased by a similar margin (9.6%) for next year, bringing the expected annual EPS to $15.76.

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Image source: Zacks Investment Research

Somehow more impressive than Kroger, Target has chained 12 consecutive earnings beats since May 2019. Including its most recent quarter, more than half of the past 12 reports witnessed a double-digit earnings surprise. Last quarter’s surprise 11.5% was enough to beat estimates of $0.33 per share and bring in quarterly EPS of $3.19. The average earnings surprise for the retailer has been nearly 22% over the past four quarters. EPS data for the last seven quarters is below.

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Image source: Zacks Investment Research

Target has been largely successful in growing its EPS and has had positive upward revisions for the current year and next year. Evolving from its typical brick-and-mortar business, Target is well positioned for future growth with its robust e-commerce platform, and the company has also performed better than the general market over the past year. For these reasons, I think Target is an important addition to your portfolio.

His overall VGM score is an A and is a Zacks Rank #1 (Strong Buy).

Nordström

Nordstrom JWN is the last retail stock with a Zacks Rank #1 (Strong Buy) that I will analyze. Originally a footwear company, JWN has evolved into a leading fashion retailer offering attractive apparel, footwear and accessories for men, women and children. Headquartered in Seattle, the company currently operates 100 full-line stores in 40 states across the United States and Canada.

The price action for JWN has been interesting, to say the least. JWN has detached itself from the broader market for most of the past year, falling 48%, but recently the stock has soared following its quarterly results. Year-to-date, JWN has returned nearly 7%. Below is a graph comparing performance over the past year.

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Image source: Zacks Investment Research

Current and next year estimates for the retailer have recently skyrocketed. Over the past 60 days, there have been 13 upward revisions to estimates in total. For the current year, EPS estimates have climbed 62% to $3.30 per share, and for next year, the consensus trend of estimates has increased nearly 43% to $3.30 per share. .

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Image source: Zacks Investment Research

The company’s earnings have been mixed over the past four quarters, with two estimated beats and two misses. In the latest quarterly report, JWN surprised nearly 20% and topped estimates by $0.19, reporting quarterly EPS of $1.23. Moreover, over the past four reports, the average surprise has been around 14%.

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Image source: Zacks Investment Research

JWN’s rocky performance over the past year isn’t enough to deter me, and JWN’s current 12-month earnings multiple of 6.9X is the reason. The retailer’s attractive and cheaper P/E is considerably lower than the industry’s 12.1X, presenting an opportunity to buy stocks at a discount. Given its valuation, recent upward revisions to estimates, and a promising recent quarter, I think JWN would be a great addition to your portfolio.

JWN has a VGM score of an A and is a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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