Investing in Retail: Riding the Wave of Consumer Sentiment Investing in Retail: Riding the Wave of Consumer Sentiment

By: Alex Freidmen

U.S. consumer sentiment has surged to its highest level in two and a half years, signaling a potential shift in the economic landscape. The decline in inflation expectations, against a backdrop of a robust stock market and a healthy job market, has added to the optimism. The University of Michigan’s preliminary reading on the overall index of consumer sentiment for January stands at an impressive 78.8, the highest since July 2021 and a significant leap from December’s 69.7.

This unexpected positive turn comes amidst worries about rising inflation. However, the decline in consumers’ inflation expectations for the next 12 months to 2.9%, the lowest level since December 2020, aligns with a range observed before the onset of the COVID-19 pandemic. Lower inflation expectations are welcoming news for investors and could potentially open the door for interest rate cuts in the coming months.

Investors should take note of the surge in consumer confidence, which could play a pivotal role in allaying fears of an impending recession. This new wave of confidence, coupled with strong employment and wage gains, has prompted a spending spree among Americans.

Given these positive developments, smart investors may find opportunities in sectors that traditionally thrive in times of economic optimism, such as retail, to capitalize on the more positive economic outlook.

Past-Year Price Performance

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Prominent Picks to Consider

Casey’s General Stores, Inc. (CASY) is a potential pick backed by commendable price and product optimization strategies, increased penetration of private brands, and robust Inside category performance. The company’s unique self-distribution model and strategic acquisitions are noteworthy strengths. The Zacks Consensus Estimate for Casey’s current fiscal sales and EPS suggests growth of 0.3% and 9%, respectively, from the year-ago reported figure. This Zacks Rank #1 (Strong Buy) company has a trailing four-quarter earnings surprise of 17.8%, on average.

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Investors can also consider Target Corporation (TGT). The company has been adapting to the dynamic retail landscape with enhanced omnichannel capabilities, new brands, and expanded same-day delivery options. The Zacks Consensus Estimate for Target’s current financial-year EPS suggests growth of 38.5% from the year-ago reported figure. TGT, which sports a Zacks Rank #1, has a trailing four-quarter earnings surprise of 30.8%, on average.

Amazon.com, Inc. (AMZN) is worth considering with its robust e-commerce platform and Prime membership driving revenue growth. The Zacks Consensus Estimate for Amazon’s current financial-year sales and EPS suggests growth of 11.1% and 278.9%, respectively, from the year-ago reported figure. AMZN, which sports a Zacks Rank #1, has a trailing four-quarter earnings surprise of 54.9%, on average.

American Eagle Outfitters, Inc. (AEO) is worth betting on due to its efforts to rationalize inventory and contain costs. The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal sales and EPS suggests growth of 5% and 43.3%, respectively, from the year-ago reported figure. AEO, which carries a Zacks Rank #2 (Buy), delivered a trailing four-quarter earnings surprise of 23%, on average.

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