‘Tis the season to go shopping. While your focus this time of year may be buying presents for little Timmy, you may also want to consider stocking up on retailers for your investment portfolio.
This year, the National Retail Federation is projecting sales in November and December to rise 3.6 percent to $655.8 billion. Last year, holiday sales represented nearly 20 percent of the retail industry’s total sales.
[See: The 9 Best ETFs for Retail Power.]
Since Nov. 1, the S&P Retail Select industry index and the SPDR S&P Retail exchange-traded fund (ticker: XRT), which tracks the index and is considered an industry benchmark, are up more than 12 percent.
“It’s been a pretty good year for retail,” says Kevin Quigg, chief strategist at ACSI Funds.
He thinks Black Friday and Cyber Monday have been good for retailers this year because of rising consumer confidence after the presidential election. It’s not completely clear whether it is relief simply that the election is over or if consumers are bullish on a Republican administration and Congress.
“I kind of get the vibe that a little more spending is going on,” says Kim Forrest, vice president and senior analyst at Fort Pitt Capital Group.
She thinks spending is up compared with the past couple of years because more people have jobs, and wages have been rising.
Employment growth has been averaging 180,000 non-farm jobs per month through November this year, and civilian wage, salary and benefit costs rose 2.3 percent for the 12-month period ending in September, according to the Labor Department.
Millennials are also starting to move into a phase of life where they start to spend more, perhaps because of having children, she says.
Of course, brick-and-mortar retailers have been facing competition from online retailers and other headwinds. Sales at Sears Holdings Corp. ( SHLD) have been sliding. Sports Authority and Aeropostale have filed for bankruptcy. And JC Penney Co. ( JCP), Macy’s ( M) and Wal-Mart Stores ( WMT) and others have announced store closures.
When investing in retailers, customer satisfaction is a key metric.
[See: 10 Ways You Can Throw Retail Stocks in Your Cart.]
The American Customer Satisfaction Index — on which ASCI Funds’ investments are based — ranks retailers and other companies on customer satisfaction, and the index is based on the premise that companies who please their customers are poised to perform better in the stock market. And for Forrest, investing in merchandizers that provide excellent service and have a product selection that their customers crave is crucial.
Here’s a look at some retailers you may want to add to your shopping cart.
Amazon.com (AMZN). “Amazon is the undisputed king of e-commerce, and will perform amazingly yet again this holiday season,” says Jeff Reeves, executive editor at InvestorPlace.com. He points to the popularity of Amazon Prime, noting that the $99 annual subscription adds up to substantial revenue for the e-commerce company.
Consumer Intelligence Research Partners estimated Amazon had more than 65 million Prime members in the U.S. as of Sept. 30. Overall, the company has dominant market share and expanding its clients’ experience through a ticketing business and potential sports streaming builds brand loyalty and comfort, Quigg says.
“Amazon is becoming a monster in internet retail,” Quigg says.
Nordstrom (JWN). This company scored the highest among ACSI’s department and discount store scores, beating out No. 2 Dillard’s ( DDS). In addition to customer satisfaction, Quigg points to Nordstrom’s partnerships with Nike ( NKE) and Tesla Motors ( TSLA), and its move to expand their discount stores.
Urban Outfitters (URBN). Forrest likes Urban Outfitters because the company seems to have the pulse of what its customers want. Also, the company and its Anthropologie brand have added cosmetics, which increases their sales per square foot, she says. And she points to the company’s margins and house brands.
VF Corp. (VFC). Forrest compares VF Corp. to consumer staples powerhouse Procter & Gamble Co. ( PG) because both companies own lots of brands and do deep research into what their customers want. VF — whose brands include The North Face, Vans, Timberland and Wrangler — has a rock solid balance sheet, she says.
[Read: The Retailers Guide to Beating Amazon.com.]
And she praises the company’s supply chain management, including VF’s ability to massage it to get tax breaks. That’s something end consumers may not notice, but it makes a difference to shareholders as it boosts the company’s margins, she says.
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4 Retail Leaders Worth a Look This Holiday Season originally appeared on usnews.com
