2 Red-Hot Stock Picks for Momentum Investors

The retail industry has generated solid momentum over the past year due to its fast adaptation to pandemic-induced challenges and attendant consumer needs. We think this trend is likely to continue in the coming months, driven by strong consumer spending. Thus, Signet Jewelers (SIG) and Zumiez (ZUMZ) should be able to maintain their momentum. Let’s discuss.

The retail sector has been among the fastest industries to make operational changes to overcome pandemic-led challenges. Since the early days of the pandemic, many companies have brought a critical focus to their online presence and home delivery systems. And despite the rising popularity of physical shopping lately, the convenience of online shopping has allowed online retail sales to increase 39% year-over-year in the first quarter of 2021—nearly triple the increase in the 2020 first quarter.

Given rising consumer spending, several retail stocks have gained momentum of late. This is evident in the S&P Retail Select Index’s 120.2% and 50% gains over the past year and year-to-date, respectively, versus  the broader S&P 500 index’s 36.6% and 16.3% returns.

Signet Jewelers Limited (SIG) and Zumiez Inc. (ZUMZ) are currently trading above their 50-day and 200-day moving averages. Given the favorable backdrop, we expect these two stocks to maintain their momentum in the near term.

Click here to checkout our Retail Industry Report for 2021

Signet Jewelers Limited (SIG)

Hamilton, Bermuda-based SIG is the world's largest retailer of diamond jewelry and largest specialty jewelry retailer in the U.S., U.K. and Canada. The company operates through five segments: its  Sterling Jewelers division;  Zale division, which consists of the Zale Jewelry and Piercing Pagoda operations; U.K. Jewelry division; and Other.

On April 6, SIG acquired Rocksbox, an innovative jewelry rental subscription platform. Amid the growing popularity of digitization and subscription-based services, this acquisition should allow the company to expand its customer reach and increase its revenues significantly.

SIG’s revenues increased 98.2% year-over-year to $1.69 billion in its  fiscal first quarter, ended May 1. Its operating income grew 156.3% from its  year-ago value to $168.70 million, while its net income improved 170.2% year-over-year to $138.40 million. The company’s EPS increased 156.3% year-over-year to $2.23.

Analysts expect SIG’s revenues to increase 27.8% year-over-year to $6.68 billion in the current year. A $7.09 consensus EPS estimate for the current  year indicates a 236% rise from the prior year. Moreover, SIG surpassed the Street’s EPS estimates in each of the trailing four quarters.

Shares of SIG have gained 553.2% over the past year, and 181.2% year-to-date. It is currently trading above its  $71.09 and $56.24 respective 50-day and 200-day moving averages, indicating an uptrend. Furthermore, the stock is currently trading just 9.4% below its 52-week high of $83.00.

It is no surprise that SIG has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock also has A grade for Growth, Value, and Momentum, and a B grade for Quality. Among the 65 stocks in the A-rated Fashion & Luxury industry, SIG is ranked #5.

To see additional SIG ratings for Sentiment and Stability, click here.

Zumiez Inc. (ZUMZ)

ZUMZ is a specialty retailer of apparel, footwear, accessories, and hardgoods for young men and women. Its hardgoods offerings include skateboards, snowboards, bindings, components, and other equipment. ZUMZ is based in Lynnwood, Wash.

ZUMZ’s net sales increased 102.6% year-over-year to $279.07 million in its  fiscal first quarter, ended May 1. Its gross profit stood at $103.17 million, up 334.7% from the same period last year. Its net income grew 225% from its  year-ago value to $26.39 million. And the company's EPS increased 222.6% year-over-year to $1.03.

A $1.21 billion consensus revenue estimate for the current year indicates a 22.1% increase year-over-year. The Street expects the company’s EPS to rise 45.7% from the prior year to $4.37 in the current year. ZUMZ has an impressive earnings surprise history also, as it beat the consensus EPS estimates in each of the trailing four quarters.

ZUMZ has gained 86.4% over the past year, and 28.4% year-to-date. The stock is currently trading above its $46.77 and $44.70 respective 50-day and 200-day moving averages, which indicates  an overall uptrend. Also, it is currently trading just 9.2% below its 52-week high of $52.00.

ZUMZ has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. ZUMZ has an A grade for Momentum and Quality, and a B grade  for Value and Sentiment. It is ranked #6 in the Fashion & Luxury industry.

Click here to view additional ZUMZ ratings for Growth and Stability.

Click here to checkout our Retail Industry Report for 2021

SIG shares were trading at $73.11 per share on Wednesday afternoon, down $2.09 (-2.78%). Year-to-date, SIG has gained 168.10%, versus a 17.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.


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