The coronavirus pandemic has upended consumer shopping, accelerating the trend toward e-commerce and turning the focus of people’s spending to their homes and even autos. For this Stocks First Cut we turn our focus to retail companies. There are 161 exchange-listed retail stocks in AAII’s Stock Investor Pro, scattered across 10 industry segments including apparel, auto, computer, drug, food, home furnishing, home improvement, discount, department and specialty.

The first filter required passing companies to have a weighted relative strength price rank of 60% or higher. The weighted relative strength examines price momentum over the last year but gives emphasis to the performance over the last 13 weeks. Stocks with strong price momentum tend to continue to outperform the market.

Next, the First Cut required improvements over the last three months in the consensus earnings estimate for the current and next fiscal year, highlighting firms with improving prospects. The table below lists the expected earnings per share estimate for the current and next fiscal year and indicates the percentage improvement of each estimate over the last three months.

The First Cut also sought out companies with gross margins higher than the median for their industry. This ratio reflects the pricing decisions of a company as well as the costs of purchasing merchandise. It is the ratio of the gross income of a company (sales less cost of goods sold) to its sales for the same period. The higher the gross margin and the more stable it is over time, the greater the company’s expected profitability.

Finally, the First Cut required that the inventory turnover ratio be equal to or better than the median for the industry. It is the ratio of cost of goods sold to average inventory. This ratio approximates the number of times inventory is used and replenished over the course of the reporting period, which is 12 months for our analysis. A higher ratio indicates that inventory does not languish in warehouses or on store shelves.

Retail Socks With Upward Earnings Revisions, Attractive Profitability and Strong Price Momentum

Twelve companies made the First Cut and they are ranked by relative price strength. The quick ratio is listed in the table to provide a simple measure of financial liquidity. The quick ratio adds cash and accounts receivables from the balance sheet and divides that figure by current liabilities—higher figures are better. The price-to-sales ratio gives an indication of the valuation levels of the stocks making the First Cut. ?

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