3 Stocks for a Brighter Christmas - Analyst Blog

Christmas heralds the last stretch of this year's holiday season. The U.S. economy is booming and labor market conditions have improved. Other economic indicators have also largely been on the positive side. The latest in this series is an upward revision of third quarter GDP, which now stands at 5%.

Taken together, these are perfect conditions for holiday shopping. As we head into the last shopping weekend before the year ends, let's examine some of the key factors which will continue to guide purchases.

Season for Retailers

This is usually one of the strongest periods for retailers. Larger players like Target Corp. (TGT) and Wal-Mart Stores Inc. (WMT) make the majority of their sales during the holiday season. Additionally, more specialized retailers like Coach, Inc. (COH) also post higher sales numbers. November and December contribute around 20% of annual retail sales according to the National Retail Federation.

Despite all the hype over Black Friday, Super Saturday on the final weekend before Christmas is more important for the retail sector. This is because consumers have no further time to make important purchases. Consumers made record purchases of $42 billion over the Dec 20-21 weekend, according to Connecticut-based Customer Growth Partners. Last year, consumers spent $41 billion over the same period.

This comes as good news to the retail sector, following disappointing sales over the Black Friday weekend. According to the National Retail Federation, estimated sales declined by 11% compared to the same weekend last year. This is primarily because retailers announced deals earlier than usual this year.

Online Sales Boosts Transportation

According to comScore, $48.3 billion had been spent on online sales in the U.S. during the holiday season as of Dec 23. This sales report measures spending from desktops PCs for the first 51 days during the Nov-Dec 2014 season. This is 15% higher than sales reported during the same period last year. On Dec 20 and 21, sales jumped 36% to $972 million.

Transportation services are expected to gain from this trend. The growth of online retail and ecommerce led to higher volumes for these companies. According to latest numbers from the American Trucking Association, For-Hire Truck Tonnage Index increased 4.4% in November compared to the year-ago period. This helped the index rise 3.3% year-to-date compared to the same period in 2013.

Technology Dominates Shopping Trends

Another set of stocks gaining during this period are those of companies producing the latest gadgets and devices. These companies witness high sales volumes since they make for excellent gifts during this season. Boxing Day continues to offer several lucrative deals for consumers who didn't make their purchases around Christmas.

This trend is expected to continue after Christmas and into January. Several electronic products are expected to be available at highly discounted prices following the end of the International Consumer Electronics Show being held in Las Vegas. This will happen as retailers clear stocks before they release new products for next year.

Our Choices

Below we present three stocks which will gain from these trends, each of which also has a good Zacks Rank.

Michael Kors Holdings Ltd. (KORS) is a global luxury lifestyle company, founded by renowned designer Michael Kors. The company produces a diverse assortment of products including handbags, watches, accessories, jewelry and fragrance products and footwear.

Michael Kors holds a Zacks Rank #2 (Buy) and has expected earnings growth of 29.7%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 18.03.

Old Dominion Freight Line Inc. (ODFL) is an inter-regional and multi-regional motor carrier. The company primarily provides less-than-truckload shipments of general commodities, including consumer goods, textiles and capital goods to a diversified customer base.

Apart from a Zacks Rank #2 (Buy), Old Dominion Freight Line has current year expected earnings growth of 26%. It has a P/E (F1) of 26.10x.

Harman International Industries, Inc. (HAR) is engaged in the development, manufacturing and marketing of audio products, lighting solutions, electronic systems & digitally integrated audio and infotainment systems. The company offers a broad range of products under popular brand names including Aha, Harmon/Kardon and JBL.

Harman holds a Zacks Rank #2 (Buy) and has expected earnings growth of 19.8%. It has a P/E (F1) of 19.91x.

After the end of the holiday season is the “back-to-school” period. This is usually the second most important period for retailers. Given these factors, adding these stocks to your portfolio would be a prudent choice.