Black Friday sales have been trending downward in recent years. But coming off a strong September (+1.6% year-over-year growth), there’s reason for optimism about the U.S. retail sector this holiday season. For investors, that means there’s reason to consider investing in retail stocks.
The National Retail Federation (NRF), which, it should be said, does tend to overestimate, expects Americans to spend a record $682 billion this holiday season, beginning next week with Thanksgiving and Black Friday. If true, that would be a 4% improvement over 2016, and would mark the largest year-over-year increase since 2014.
According to NRF data, holiday retail sales have improved by an average of 2.5% annually in the last 15 years, dragged down by major down shopping seasons during the 2008-09 recession. Last year’s 3.6% increase was, thus, above the 15-year average, though it did not precipitate a rush to retail stocks. Over the last six weeks of 2016, the SPDR S&P Retail ETF (XRT) was down 2.7%.
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So another better-than-average increase in retail sales this holiday season might not show up in retailer share prices as a group. That said, there are always some retail stocks that get a bump—and that bump typically starts right about now.
Since we tend not to bottom-feed at Cabot, let’s focus on “Black Friday stocks” with charts that are already trending in the right direction. Here are three retail stocks to buy before Black Friday (and Cyber Monday):
Black Friday Retail Stock #1: Amazon.com (AMZN)
This one’s a no-brainer. Amazon dominates Cyber Monday, as the e-commerce giant has expanded its discount deals from a day to a full week in recent years.
After running in place for the better part of five months, the stock is suddenly headed to the stratosphere, gapping above four figures for the first time in its history on earnings. Currently trading at all-time highs on the heels of a rally that’s just two weeks old, I expect AMZN stock to keep on motoring to even greater heights well into the New Year.
Black Friday Retail Stock #2: McDonald’s (MCD)
Compared to Amazon, McDonald’s feels like a dinosaur.
But more than half the country still shops at brick-and-mortar stores on Black Friday weekend, and all those people need to eat somewhere—preferably on the cheap—while they’re shopping. By sheer volume of locations, McDonald’s is likely to be the most popular choice. It also happens to be the best-performing fast-food stock right now.
MCD is up 38% this year and 9.5% in the last six weeks, jumping from 153 to 167 and clearing both its 50- and 200-day moving averages in the process. Sales have been on a steady decline, but earnings have been resilient, accelerating to 54% EPS growth in third quarter—the company’s best bottom-line increase in years. Analysts expect another 10.5% bump in the current quarter, despite forecasts of a 13.5% sales decline.
MCD stock has gotten a Black Friday bump in late November and December in each of the last two years. Look for a similar end-of-year bounce-back in MCD stock this year—especially now that the stock has plenty of momentum on its side.
Black Friday Retail Stock #3: Five Below (FIVE)
In an ever-evolving U.S. retail landscape, deep discounters like Five Below are replacing pricier department-store standbys like J.C. Penney (JCP) and Macy’s (M) as the new brick-and-mortar shopping venues of choice. As its name indicates, Five Below sells items for $5 or less—and consumers are eating it up.
The discount retailer routinely grows sales and earnings by double digits, including 28% top-line growth and 66% EPS bottom-line growth in its most recent quarter. Those numbers have caught investors’ attention: FIVE is up 45% year to date, and 17% since late September. That’s a whole lot of momentum heading into the busiest shopping month of the year.
If you want to learn what other momentum stocks we’re recommending as the holidays approach, you can get yourself the gift of a subscription to Cabot Top Ten Trader. In it, you’ll find strong momentum stocks to buy now. For more information, click here.
Investment analyst and web content editor Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!