Shopping list

3 retail stocks for the fourth quarter shopping list

Retailers were among the hardest hit businesses at the start of the pandemic. Those that suffered extended store closures and lacked a strong online presence fared the worst.

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Fast forward 18 months and the distribution sector is booming. Stores have reopened, customer traffic has returned, and the American consumer is spending. U.S. retail sales rose for the second straight month in September despite global supply chain constraints limiting product availability.

As the all-important holiday shopping season approaches, retailers are still facing supply shortages and the prospect that higher prices will hamper their spending habits. Ultimately, however, consumer strength will prevail according to the National Retail Federation. He predicts U.S. vacation sales will rise as much as 10.5% this year on the back of rising personal income and healthy household balance sheets.

Retail inventory have already had a terrific run since their March 2020 low. The SPDR S&P Retail ETF ended 2020 up 30% and jumped another 60% year-to-date. So, are there any good deals left for investors? Here are three names that still have good upside potential for the remainder of Q4 and beyond.

Is Shoe Carnival a good stock to own?

Shoe Carnival (NASDAQ: SCVL) had a great first half. Consumer demand for shoes and especially popular sneaker brands like Nike has created a circus shopping atmosphere at the retailer’s 377 stores and online storefront.

Although the first two quarters of 2021, earnings per share (EPS) was $3.05, which was more than double the consensus estimate. Shoe Carnival has yet to release its third-quarter results and while analysts have raised their forecasts, another big beat wouldn’t be surprising.

As the saying goes, “if the shoe fits, carry’. Investors should jump on this emerging growth story, as Shoe Carnival offers an ideal mix of physical and e-commerce dynamics. People love the carnival experience of in-store shopping with upbeat music, real-time promotions, and a spin-n-win wheel. Shoe Carnival has transformed sneaker shopping into an event that, combined with a growing online business, is expected to continue to appeal to consumers of all ages, ethnicities and income levels.

Is it a good time to buy Abercrombie & Fitch shares?

Abercrombie & Fitch (NYSE: ANF) is a game of growth and value wrapped up in a vacation package. The apparel retailer is poised for another strong performance in the fourth quarter due to the popularity of its namesake and Hollister brands as well as booming digital business.

Earnings estimates have been significantly exceeded in each of the past quarters, largely because the street hasn’t given enough credit to A&F’s online channels. Last quarter, mobile and website sales accounted for more than 40% of overall sales and are expected to remain strong as consumers shift to online shopping. And while most of A&F’s physical stores are in the United States, they also have a growing presence in Europe, Asia and the Middle East.

The stock retreated from its all-time high on industry-wide concerns about supply chain disruptions and rising transportation costs. This created an opportunity to buy one of retail’s strongest growth stories at a bargain price.

A&F shares are trading at 10.5 forward earnings, which is below the average for its peer group despite the company having above-average fundamentals. Over $1 billion in cash and declining inventory levels are two things that separate it from the pack. The favor with its key Gen Z demographic also makes it a plugged growth game to 2022.

Will ThredUp report good results in the third quarter?

ThredUp(NASDAQ: TDUP) shareholders may be fed up lately with the shares returning to their March 2021 IPO level. The online retailer of second-hand women’s and children’s clothing has been disappointed with its financial results so far, but deserves a second chance. After posting a strong loss in the first quarter of this year, ThredUp’s bottom line has improved significantly thanks to better cost control and a business model that is gaining traction in a niche in the making.

Resale is the fastest growing segment of the apparel market and ThredUp has developed a unique platform where buyers and sellers become one. Although there are negative connotations with “second-hand” clothing, consumers find it a great place to find high-quality merchandise at a fraction of the price. The average item sells for $18, but prices and product assortment vary widely. Consumers also appreciate the ‘green’ nature of the company, making it a must-have sustainable investment.

There’s also a lot of growth to be had here as ThredUp benefits from its leading position in apparel resale. Revenue growth and gross margins accelerated to 27% and 34% respectively in the last quarter. Whether the company can build on that momentum when it reports third-quarter results after the Nov. 8 closeandthe title could quickly regain its credibility.

Wall Street has largely backed ThredUp despite its slow start. Over the past month, three companies have called the stock a “buy” with price targets ranging from $23 to $35. Eventually, consumers may get tired of rising prices, which makes ThredUp an interesting play on the second-hand economy.