Fear of exaggerated inflation? 4 ETFs and stocks in the retail sector look robust


RU.S. retail sales jumped 3.8% sequentially in January 2022, rebounding from an upward-revised decline of 2.5% in December, and much better than market forecasts of a rise by 2%. The reading marked the biggest increase in retail sales in 10 months as consumers splurged on purchases despite rising COVID-19 cases and searing inflation. Year-over-year retail sales rose 13% in January.

This means that rising inflation is not hampering consumer spending as feared. According to the University of Michigan, consumer confidence is at its lowest level since October 2011 due to soaring inflation. But a combination of rising employment, higher wages and accumulated savings allow consumers to pay these additional prices. Notably, the household savings rate in the United States rose from 7.20% in November 2021 to 7.90% in December.

Consumer spending accounts for about 70% of US economic activity. So any massive jump from it will likely improve the outlook for economic growth. Below, we highlight a few areas and associated ETFs that are expected to stay afloat in the coming days.

Non-store retailers

Sales in this category increased 14.5% sequentially. Year over year, sales increased by 8.4%. Consumer interest in purchasing products online amid rising virus cases has kept demand high for the segment.

The ETF choice here is ProShares Online Retail ETF ONLN. The underlying ProShares Online Retail Index is a specialist retail index that tracks retailers who sell primarily online or through other non-store channels. The fund charges 58 basis points in fees.

Stock selection is Grubhub GRUB. Zacks Rank #2 company provides an online food delivery marketplace. It focuses on connecting consumers and restaurants through its platforms.

Department stores

Sales rose 3.6% sequentially in January and 7.6% year-over-year. Within the group, department stores posted a sequential increase in sales of 9.2% and an increase of 11.5% year-on-year.

Regarding the ETF, VanEck Retail ETFs RTH owns several department stores. iShares Evolved US Discretionary Spending ETF IEDI, which uses data science techniques to identify companies exposed to the discretionary spending sector, also provides exposure to the segment.

Investors can consult Walmart Inc. WMT. Walmart has grown from just a traditional brick-and-mortar retailer to an omnichannel player. The stock has a Zacks rank #3 (Hold).

Furniture and home furnishings stores

Sales jumped 7.2% sequentially in January and 2.7% year-over-year.

VanEck Retail ETFs RTH has strong exposure to various home improvement companies like Lowe’s and Home Depot.

Our stock selection here is Lowe’s Companies MOW. The Zacks Rank #2 company operates as a home improvement company in the United States, Canada and Mexico. It offers a range of products for maintenance, repair, renovation and decoration.

Building Materials and Gardening Equipment and Supplies Dealers

The building material and garden equipment and supplies dealers segment recorded a sequential increase in sales of 4.1% in January. Additionally, segment sales increased 12.2% year-over-year. Additionally, space also saw a notable increase in sales in December, hinting at continued consumer interest in this area.

When it comes to ETFs, broad-based retail ETFs like SPDR Consumer Discretionary ETFs XLY and VanEck Retail ETFs (RTH) should do the trick.

Zacks Rank #2 (Buy) Stock Central garden and pet CENT can gain from this trend. Central Garden looks forward to solidifying its position as one of America’s leading pet supplies and lawn and garden supplies companies.

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Walmart Inc. (WMT): Free Inventory Analysis Report

Lowe’s Companies, Inc. (LOW): Free Stock Analysis Report

Central Garden & Pet Company (CENT): Free Stock Analysis Report

VanEck Retail ETF (RTH): ETF Research Reports

Just Eat Takeaway.com NV Sponsored ADR (GRUB): Free Stock Analysis Report

SPDR Consumer Discretionary ETFs (XLY): ETF Research Reports

iShares Evolved US Discretionary Spending ETF (IEDI): ETF Research Reports

ProShares Online Retail ETF (ONLN): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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