Consumers are getting a tax cut of sorts, thanks to lower gas prices. These companies are sure to benefit from the excess cash in shoppers’ pockets.
There’s a stat going around that every one-cent drop in gas prices puts a billion dollars into the pockets of shoppers. Gas prices are below $3 a gallon on average and at the lowest levels in over four years. They’ve fallen nearly 40 cents a gallon over the last month.
That means consumers will have more money in their wallets in coming months. Add to that an improving employment picture and retailers could have strong tailwinds heading into the holiday shopping season.
Here are five retailers that are positioned to benefit from lower gas prices:
No. 1: TJX Companies (NYSE: TJX)
TJX is a leading off-price retailer, operating the T.J. Maxx, Marshalls and HomeGoods stores in the U.S. Shares are flat year-to-date, but it’s one of the best investments in the retail space. It offers a 1.1% dividend yield and its return on investment is a very solid 39%.
TJX has been one of the biggest benefactors of the increased demand for low-priced goods. The shift from high-end to low-end products appears to be working as TJX’s business model of offering trendy products at discounted prices is resonating with millennials. It also offers sells home goods products, which is getting a boost from the rebound in homebuilding.
No. 2: Dillard’s Inc. (NYSE: DDS)
Dillard’s is a department store retailer of apparel and home furnishings, operating some 300 stores. It’s an underrated retailer with a strong brick-and-mortar business and e-commerce platform. Its stores are now offering more on-trend products. The company has remodeled a number of stores over the past couple years; they are sure to attract more shoppers this holiday season.
Dillard’s trades at a P/E (price-to-earnings) ratio of 15. Coupled with Wall Street’s expected earnings growth, its P/E-to-growth rate (PEG) ratio is right at 1. Any PEG ratio at or below 1.0 is considered a cheap stock.
Dillard’s is also a free-cash-flow story, generating near $10 a share in free cash flow over the last 12 months. Thus, Dillard’s could be an even more shareholder-friendly company going forward. Its dividend yield of 0.2%, which is only a 3% payout of earnings, leaves plenty of room for a dividend increase. And it only repurchased 1.6% of its outstanding shares during the first half of this year, versus the 3.5% it repurchased during the first half of 2010.
No. 3: J.C. Penney Co. (NYSE: JCP)
J.C. Penney is a risky play. It’s a turnaround story and has a debt-to-equity ratio of 210%. The stock is down 17% year-to-date and has fallen over 90% from its 2007 all-time highs.
The company recently brought in Marvin Ellison as CEO. This removes a key uncertainty; Ellison is a CEO with experience in fixing supply chain issues. Ellison previously worked at Home Depot and has had success in boosting IT infrastructure and revamping distribution networks.
For near-term catalysts, J.C. Penney is still a major seller of national and private label brands and has been aggressively investing in point-of-sale technology to help make the buying process easier and more fluent. J.C. Penney has also been effective at trying to get younger shoppers in its stores by opening more Sephora store-in-a-stores. With a new advertising campaign, this retailer could look to recapture some of its lost market share come this holiday season.
Nos. 4 and 5: Sleeper Picks
Sleeper picks include Zulily Inc. (NASDAQ: ZU) and Burlington Stores Inc. (NYSE: BURL). Zulily is an e-commerce player selling close to 5,000 products, using flash sales that are available for a limited time. Around half of the items that Zulily offers aren’t offered on Amazon.com.
Zulily has been the worst performer among the stocks listed, down 12% year-to-date and down 50% since its all-time high back in February. However, it has no debt and caters to women —who make up the majority of shoppers anyway.
Burlington has been a solid stock to own in 2014, up 31% year-to-date. It’s a player in the off-price retail space with 500 stores, but unlike TJX, Burlington focuses on outerwear. After missteps by management a few years back, the company hasn’t enjoyed the same recent success as TJX and other off-price retailers. Its focus of late has been on getting more value-focused products in its stores, a strategy that appears to be working.
All in all, the retail industry will be one of the biggest benefactors of the additional money shoppers are finding in their pockets. The five stocks above are worth keeping an eye on as we head into what should be a strong holiday shopping season.
No matter where gas prices go – you get paid
Gas prices have been moving down for a lot of the country – thanks to fluctuations in crude prices. So finally, average American’s are getting a little relief at the pumps. However, one group of folks are taking it one step further – and letting big oil companies pay them to fill up. And believe it or not – it’s all part of an exclusive US Government program. And if you’re eligible, you could collect up to $310 in Gas Rebates very soon. Click here for all the details of this program.