As I have mentioned in recent weeks, the Federal Reserve has its hands tied when it comes to raising interest rates.
So, I expect the low interest rate environment to last all of 2015, which creates an excellent buying opportunity in quality stocks.
As consumers have more cash to spend, there can be hope that some of that will translate to retail stocks’ bottom lines.
The noise or lack thereof surrounding retail stocks might suggest that the downtrend in retail sales numbers means hardship for retail investors. However, the retail sector has actually been seeing big gains, and even bigger gains could still be around the corner.
The retail sector, as tracked by the SPDR S&P Retail (ETF) (NYSEARCA:XRT), is up 18% over the past year. Among the stocks leading the retail sector, two stand out as solid stocks to buy.
L Brands Inc (NYSE:LB)
L Brands Inc (NYSE:LB) is a specialty retail company that operates roughly 2,975 stores throughout North America under the Victoria’s Secret, PINK, Bath & Body Works and La Senza (Canada only) brand names. L Brands also has a robust online and catalog sales business.
L Brands was formerly known as Limited Brands and changed its name in March 2013. Originally, L Brands focused on apparel, operating two clothing store chains — the Limited and Express — but sold those ventures in 2007 to focus on its core businesses, Victoria’s Secret and Bath & Body Works. L Brands also owns apparel importer, MAST Industries; luxury department store operator, Henri Bendel; and The White Barn Candle Company.
Both men and women are intimately familiar with Victoria’s Secret, and I know that many women can’t help but go into a Bath & Body Works store when passing by one. Both of these brands have become popular mainstays in shopping districts and malls across the country, which was apparent in L Brands’ third-quarter earnings results.
Last quarter, L Brands’ sales rose 6.8% year over year to $2.32 billion. LB stock earnings jumped 42% to $284.11 million, or 44 cents per share. Analysts were calling for earnings of 40 cents per share on $2.32 billion in revenue. So, L Brands posted a 10% earnings surprise and met sales estimates.
And the fourth quarter is shaping up to be even stronger. During the holiday shopping season, L Brands posted 4% same-stores sales growth, above analysts’ expectations of 3.6% growth. For the fourth quarter, analysts are calling for 7.8% annual sales growth and 7% earnings growth. For the following quarter, the consensus is 16% forecasted earnings growth.
In addition to solid sales and earnings prospects, LB stock also has a decent 1.6% dividend yield. L Brands reports fourth-quarter results towards the end of February. So, you’ll want to add LB stock before then.
Signet Jewelers Ltd. (NYSE:SIG)
The other stock to buy is another premium retail play. Signet Jewelers Ltd. (NYSE:SIG) is the largest specialty jewelry retailer in three major markets: The U.S., the U.K. and Canada.
Signet’s Kay Jewelers, which has 1,055 location across the U.S., accounts for over half of Signet Jewelers’ sales. Jared The Galleria of Jewelry accounts for a quarter of Signet’s annual revenue.
In the U.S. and Canada, Signet also operates over 1,600 stores under the Zale name including Zales Jewelers, Peoples Jewelers, Gordon’s Jewelers and Piercing Pagoda. In the U.K., Signet runs a network of nearly 500 stores under the H. Samuel, Ernest Jones and Leslie Davis brands.
Now is an especially good time to buy SIG stock because December is the most important month of the year for diamond buying. Historically, the fourth quarter alone accounts for 40% of Signet Jewelers’ annual revenue. And due to surging consumer confidence, recent holiday sales were expected to have been exceptionally strong.
For Signet Jewelers’ next earnings report (which is due out in late March), analysts are expecting 48.5% annual sales growth and 39.4% earnings growth. However, given that Signet has posted earnings surprises for the past several quarters in a row, it could do even better.
In the meantime, SIG stock went ex-dividend yesterday, Jan. 28. Shareholders of record on Jan. 30 will receive 18 cents per share on Feb. 26. Overall, SIG stock is a “strong buy.”
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
