5 Stocks For Black Friday: What’s Hot, What’s Not

The retail sector hogs all the attention with the advent of the holiday season. It is time you look beyond the woebegone market and lift your spirits. One way of doing this is by adding potential winners to your portfolio. Retail stocks get a push during the holiday season, which is a make-or-break time for retailers. And as the countdown to Black Friday begins, investors, too, scurry for the bright spots in the space.

Eye-popping Black Friday deals are the next most important to the Christmas shopping bonanza. Apart from price-matching policies, retailers try to sweep buyers off their feet with early-hour store openings, huge discounts, promotional strategies and free shipping on online purchases. Competition is at its height as retailers cross swords. And since the markets are shaky thanks to global economic turbulence and financial-market volatility, retailers do have reasons to worry.

Nonetheless, the recently released U.S. GDP data revealed a growth rate of 2.1% in the third quarter, better than the initial estimate of 1.5%. So in spite of coming in much below the 3.9% growth registered in the second quarter, the reasons to cheer are aplenty.  

A rebounding U.S. economy has the retail space bubbling with optimism. A gradual recovery in the housing market, along with lower gasoline prices, and an improving labor market – with the unemployment rate reaching a seven-year low of 5% – are favoring the economy and playing key roles in raising buyers’ confidence. We expect this positive sentiment to translate into higher consumer spending.

The busiest part of the year accounts for a sizable chunk of yearly revenues and profits of retailers. Data compiled by eMarketer suggests a 5.7% jump in holiday sales (November and December) to $885.7 billion, while National Retail Federation (NRF) projects a 3.7% sales increase for the period to $630.5 billion (excluding autos, gas and restaurant sales).

Retailers will go the extra mile to draw bargain hunters. But we wonder whether the promotions and deals will come at the price of margins, or even bottom-line growth. Some retailers will emerge as winners while some will bite the dust.