With Thanksgiving just a little more than a week away, that means the holiday season is upon us. It also means Black Friday is around the corner, which is when retailers promote major sales and as a result it is the busiest shopping day of the year. If a retail company hasn’t had a strong year, Black Friday and the holiday season is where they can make up sales. If a company has already performed well, they typically get an even more significant bump this time of year.
In fact, the retail industry has been one of the biggest beneficiaries of the pandemic recovery. The SPDR S&P Retail ETF (XRT) has shown bullish momentum since the end of March and is up 12%, since October 27th, compared to a 2.8% gain for the S&P 500. As more people got vaccinated and shopped at retail stores, retail companies saw higher growth and price performance.
The question is which retail stocks are the most likely to continue that performance. That’s where our POWR Ratings system comes into play. Stocks that have an overall rating of Buy or Strong Buy are likely to outperform stocks with lower ratings. That’s why investors should consider Buy-rated stocks Ross Stores, Inc. (ROST), Kohl’s Corporation (KSS), and Dillard’s, Inc. (DDS) for this holiday season.
Ross Stores, Inc. (ROST)
ROST is a leading American off-price apparel and home fashion retailer, operating over 1,850 stores across the Ross Dress for Less and dd’s Discounts banners. The company offers a variety of name-brand products and targets undercutting conventional retailers’ regular prices by 20%-70%. It uses an opportunistic, flexible merchandising approach.
Together with a relatively low-frills shopping environment centered on a treasure-hunt experience, the firm maximizes inventory turnover and traffic, enabling its low-price approach. While its third-quarter results won’t be reported until November 18th, management did raise its 2021 guidance based on strong second-quarter results. These were driven by strong customer demand across all merchandise categories and regions
The company has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. The company has a Growth Grade of A as analysts expect earnings to soar 478.2% for the year. ROST also has a Quality Grade of A due to a rock-solid balance sheet. For instance, the company had $5.6 billion in cash in the most recent quarter compared to only $65 million in short-term debt.
We also provide Value, Momentum, Stability, and Sentiment grades for ROST, which you can find here. ROST is ranked #13 in the A-rated Fashion & Luxury industry. For more top stocks in this industry, click here.
Kohl’s Corporation (KSS)
KSS operates 1,162 department stores in 49 states that sell moderately priced private-label and national brand clothing, shoes, accessories, cosmetics, and home furnishings. Most of these stores are in strip centers. The company also operates a large digital sales business. Women’s apparel is the store’s largest category, generating about 25% of sales.
The company has been benefiting from a strategic initiative that KSS launched last year. Management wanted to increase sales and expand its operating margin. The plan focuses on four areas: driving sales growth, expanding its operating margin, implementing disciplined capital management, and undertaking an accountable and inclusive culture. KSS has also been gaining on its strong brand portfolio and partnerships.
The company has an overall grade of B and a Buy rating in our POWR Ratings system. KSS has a Growth Grade of A as earnings are expected to surge 6,300% year over year in the third quarter. The company also has a Value Grade, which isn’t surprising with a trailing P/E of 12.38 and a forward P/E of 11.52. Its price to sales ratio of 0.5 is also low.
For the rest of KSS’s grades (Momentum, Stability, Sentiment, and Quality), click here. KSS is ranked #17 in the A-rated Fashion & Luxury industry.
Dillard’s, Inc. (DDS)
DDS is an American fashion apparel, cosmetics, and home furnishings retailer. Its stores offer a large variety of merchandise and feature products from both national and exclusive brand sources. The company also operates a general contracting construction company, CDI Contractors, which includes constructing and remodeling stores.
The company recently reported its second-quarter fiscal 2021 results, where both sales and earnings beat expectations and rose year over year. Results were driven by solid momentum in consumer demand. Management also focused on inventory management and expense control, which helped drive earnings growth.
DDS has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Growth Grade of A as analysts forecast earnings to rise 1,187.8% for the year. DDS also has a Quality Grade of A due to strong fundamentals. Not only does the company have a return on equity of 27.5, but its debt-to-equity margin is only 0.4.
To access all of DD’s grades, such as Value, Momentum, Stability, and Sentiment, click here. DDS is ranked #10 in the A-rated Fashion & Luxury industry.
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This article was written by David Cohne, Chief Value Strategist for StockNews.com. David has helped investors find the most profitable stocks for over 20 years.
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ROST shares were trading at $115.41 per share on Monday afternoon, down $0.09 (-0.08%). Year-to-date, ROST has declined -5.35%, versus a 26.20% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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