Looking For Momentum? Ulta & 4 Other Retail Stocks To Buy

The U.S. stock market displayed a sluggish performance at the start of the year owing to fears of overseas turmoil and plunging oil prices. However, the market has recouped much of the lost steam since then, and consumers feel much better about the economy. The recent rebound in oil prices, increase in consumer spending and a gradual improvement in the housing market are signals that the economy is on a recovery mode, and undoubtedly the retail sector presents itself as a lucrative investment hub.

Amid these bullish sentiments, momentum investing should be a winning strategy for investors seeking higher returns in a short spell. This is because the strategy looks to capture profits by buying hot stocks that have been on an uptrend over the past few weeks or months. It is based on the idea that once a stock establishes a trend, it is more likely to continue in that direction than drift away from the trajectory.

ULTA Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) is one such stock which is riding high given the tremendous growth prospects. The stock has gained 32.4% year to date and looks well poised to carry the momentum going forward based on the expected long-term earnings growth rate of 19.5%, Momentum Style Score of “A” and a Zacks Rank #2 (Buy). However, before looking at other momentum stocks, a glimpse into the economy is essential.

How the Economy is Unfolding

After navigating brazenly through the rough tide due to the sluggishness witnessed in emerging markets such as China and Brazil and fears of challenging economic/political conditions in Europe post Brexit, the U.S. economy looks much steady now. A clear answer to this was the GDP growth of 1.1% registered in the second quarter of 2016, albeit a tad lower than the initial estimate of 1.2%, but better than a 0.8% increase recorded in the first quarter.

Investors’ enthusiasm is further compounded by increased consumer confidence, which improved significantly in August. According to the Conference Board data, the Consumer Confidence Index rose to 101.1 in August from the July reading of 96.7, and is at its 11-month high. Industry pundits believe that a rosy job picture, improvement in the housing market and higher income prospects may have acted as catalysts to consumer sentiment.

As per the Labor Department, the economy added 255,000 jobs in July and economists are expecting a gain of about 180,000 jobs in August. Additionally, we note that the unemployment rate is hovering around 4.9%.

Given an improving labor market and the gradual rise in wages, we expect consumer spending – which accounts for over two-thirds of the U.S. economic activity – to improve. Consumer spending increased 4.4% in the second quarter from the previous estimate of 4.2%. This is the fastest pace of expansion the metric has experienced in nearly two years. The Commerce Department recently unveiled that consumer spending rose 0.3% in July, after advancing 0.5% in June.

With an expected rebound in the economy, declining unemployment rate and improving consumer spending, the retail space is bubbling with optimism. Industry analysts predict that the encouraging economic data will be reflected in an interest rate hike sometime in the year, only after due consideration of the global as well as domestic economic climate.

4 Other Momentum Stocks to Grab Your Attention

The Momentum Style Score theory basically states that what has been going up so far will possibly continue to do so in the near future. Stocks with Style Scores of ‘A’ or ‘B’, when combined with a Zacks Rank #1 (Strong Buy) or #2 handily outperform other stocks. We have identified 4 Retail-Wholesale Stocks based on this favorable combination.

Urban Outfitters Inc. (NASDAQ:URBN) , a lifestyle specialty retail company, is a solid bet. It sports a Zacks Rank #1 with a long-term earnings growth rate of 15% and Momentum Score of “B”. The stock has surged about 59.3% year to date.

We suggest investing in J. C. Penney Company, Inc. (NYSE:JCP) , which carries a Zacks Rank #2 and a long-term earnings growth rate of 16%. Shares of this provider of merchandise and services through its department stores, catalogs and website, have increased approximately 45.2% year to date. The stock has a Momentum Score of “B”.

Investors can also count on Big Lots Inc. (NYSE:BIG) with a Zacks Rank #2, long-term earnings growth rate of 13.5% and a Momentum Score of “A”. This non-traditional, discount retailer’s shares have surged roughly 30% so far in the year.

Last but not the least is Restaurant Brands International Inc. (NYSE:QSR) , which owns and operates quick service restaurants under the Burger King and Tim Hortons brand names. It flaunts a Zacks Rank #2 with a long-term earnings growth rate of 15.5% and Momentum Score of “A”. The stock has advanced about 25.8% year to date.

Bottom Line

You can apply the above mechanism and target those hidden gems that are fundamentally sound. The addition of these stocks will help you sail through unprecedented market challenges. Also, you can use the Zacks Stock Screener to find other stocks with a solid Zacks Rank and a Momentum Score of “A” or “B”.

Zacks' Best Investment Ideas for Long-Term Profit

Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>