5 Stocks to Buy as Retail Sector Stages Roaring Recovery

Thanks to Fed rate cuts, retail sales have improved remarkably in recent months and closed 2024 on a high.
We’ve selected five retails stocks with positive earnings estimate revisions in the last 60 days.
Amazon, Walmart, Urban Outfitters, Costco and Deckers Outdoor Corp stocks all have buy or strong buy ratings.

The retail sector suffered for months before starting to show signs of recovery in the second half of last year as the Federal Reserve initiated its rate-cut cycle that eased price pressures. Although not fully out of the challenging situation, retail sales have improved remarkably over the past few months and closed 2024 on a high, driven by robust consumer spending during the holiday season.

Inflation slowed in December, which is another positive news for the retail sector as it is likely to ease price pressures even more in the coming days. Given this situation, investing in retail stocks will be a wise decision.

We have selected five retail stocks, namely Amazon.com, Inc. AMZN, Walmart, Inc. WMT, Urban Outfitters URBN, Costco Wholesale Corporation COST and Deckers Outdoor Corporation DECK for investors.These stocks have seen positive earnings estimate revisions in the last 60 days, carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) each and are set for solid returns. You can see the complete list of today’s Zacks #1 Rank stocks here.

Retail sales totaled $994.1 billion in December, jumping 0.4% following an upwardly revised 0.8% increase in the prior month, the Commerce Department said last week. On a year-over-year basis, retail sales grew a robust 3.9% in December.

For the third quarter of 2024, retail sales rose 3.7% from year-ago levels. Sales rose 0.7% at auto dealerships in December after increasing 3.1% in the month earlier. Sales at furniture stores and clothing stores jumped 2.3% and 1.5%, respectively. Sales at sporting goods, hobby, musical instruments and bookstores rose 2.6%.

Retail sales, excluding automobiles, gasoline, building materials and food services, rose an impressive 0.7% in December after an unrevised 0.4% increase in November.

Higher prices posed a major challenge for the retail sector after the Federal Reserve aggressively hiked interest rates to bring down sky-high inflation. The Fed’s aggressive monetary policy saw inflation decline sharply last year, which prompted the central bank to initiate rate cuts in September.

The Fed cut interest rates by 100 basis points since September, substantially easing price pressures and borrowing costs. This gave the retail sector the much-required boost, driving sales in the final months of 2024.

Also, the holiday season saw consumers spending lavishly, driving overall retail sales in November and December. Higher consumer spending has also been helping the retail sector. Economists estimate consumer spending grew a robust 3.3% year over year in the fourth quarter after jumping 3.7% in the third quarter of 2024.

Although the Federal Reserve is unlikely to cut rates in January and March, more rate cuts are expected in the future, which is expected to further boost the retail sector.

Amazon.com, Inc. is one of the largest e-commerce providers, with sprawling operations in North America, now spreading across the globe. AMZN’s online retail business revolves around the Prime program well supported by the company’s massive distribution network. Further, the Whole Foods Market acquisition helped Amazon establish a footprint in the physical grocery supermarket space. AMZN also enjoys a dominant position in the cloud-computing market, particularly in the Infrastructure as a Service space, thanks to Amazon Web Services.

Amazon.com has an expected earnings growth rate of 82.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the last 60 days. AMZN presently sports a Zacks Rank #1.

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