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5 Industry ETFs Set to Beat Slowing Retail Sales

Retail sales in the United States increased 0.6% sequentially in August 2020, following a downwardly revised 0.9% rise in July and compared to the forecast of a 1% uptick as unemployment benefits were reduced and support for small businesses ended.

Core retail sales, which exclude automobiles, gasoline, building materials and food services, dropped 0.1% last month after a downwardly revised 0.9% increase in July. Economists polled by Reuters had forecast core retail sales gaining 0.5% in August, as quoted on CNBC.

In short, U.S. retail sales grew in August for three successive months, but the momentum is slowing. Consumer spending makes up about 70% of U.S. economic activity. Thus, any jump or slowdown in it will make or break the economic growth picture. Against this wavering backdrop, below we highlight a few areas and the related ETFs that stayed afloat.

Restaurants

Sales in food services and drinking places saw an increase of 4.7% in August but were still 15.4% down year over year. A few restaurant stocks have exposure to Invesco Dynamic Leisure and Entertainment ETF PEJ, so the fund stands to benefit.

As far as stocks are concerned, investors can bet on Zacks Rank #1 (Strong Buy) Brinker International Inc. (EAT) and Zacks Rank #2 (Buy) Darden Restaurants Inc. (DRI).

Clothing

Many mall-based clothing stores were closed amid lockdowns. So, pent-up demand has been boosting spending in this segment. Apparel and accessories’ sales gained 2.9% in the month, after recording solid gains in previous months. However, sales were still 20.4% lower than August 2019.

Apparel Retail takes about 14% of the fund SPDR S&P Retail ETF XRT. Also, much of the focus of XRT shifted toward online stores lately, ensuring its smooth ride ahead.

For single-stock selection, Zacks Rank #1 Sportsmans Warehouse Holdings Inc. (SPWH) and Zumiez Inc. (ZUMZ) appear as nice bets.

Furniture and Home Furnishing Stores

Furniture sales increased 2.1% sequentially. Year over year, sales were also up 3.8%. Home furnishing company Home Depot HD has considerable exposure to Consumer Discretionary Select Sector SPDR Fund XLY and VanEck Vectors Retail ETF (RTH). So, these ETFs should win following the release of retail sales. Investors can also bet on Zacks Rank #1 stocks like RH (RH) and WilliamsSonoma Inc. (WSM).

Electronics and Appliances

Sales of this category nudged up 0.8% sequentially. Year over year, sales were down only 2.4%. Consumers’ interest in buying electronics products should keep demand for semiconductors higher and put VanEck Vectors Semiconductor ETF SMH in a better position.

On the equity front, Zacks Rank #1 Best Buy Company Inc. BBY appears a good bet. Best Buy is a multinational specialty retailer of consumer electronics, home office products, entertainment software, communication, food preparation, wellness, heath, security, appliances and related services.

Health & Personal Care Stores

This segment saw an uptick in sales by 0.8%. Moreover, the segment’s sales were 5.6% higher year over year. Such trends should bode well for all retail and consumer staples ETFs like Consumer Staples Select Sector SPDR Fund XLP. In this regard, investors can place a bet on ColgatePalmolive Company CL, which has a Zacks Rank #3 (Hold).

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The Home Depot, Inc. (HD): Free Stock Analysis Report
 
ColgatePalmolive Company (CL): Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY): Free Stock Analysis Report
 
Brinker International, Inc. (EAT): Free Stock Analysis Report
 
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
 
SPDR SP Retail ETF (XRT): ETF Research Reports
 
VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports
 
Sportsmans Warehouse Holdings, Inc. (SPWH): Free Stock Analysis Report
 
Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports
 
Invesco Dynamic Leisure and Entertainment ETF (PEJ): ETF Research Reports
 
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Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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