With U.S. consumer spending continuing to post gains, which retail stocks will be the big winners if the trend continues? In April, spending by U.S. consumers increased by 0.3%, according to the Commerce Department. In March, the increase was 0.2%. Not only is the increase in consumer spending important to retailers, but also to the overall economy, because it makes up approximately 70% of the country's GDP.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Four stocks that look to take advantage of different types of consumers could be positioned to continue outperforming their peers. The key will be if the consumer continues to spend; based on the numbers the trend should continue.

Coffee
Dunkin' Brands Group
(Nasdaq:DNKN) is the owner and operator of Dunkin Donuts and Baskin-Robbins brands worldwide. Most Americans find it hard to resist a latte with a powdered note in the morning and an ice cream in the evening. The company, which went public last July, is close to a new all-time high as the outlook for lower coffee prices will help the bottom line. The PEG ratio of 1.56 is roughly in-line with Starbucks' (Nasdaq:SBUX) 1.48 PEG Ratio, but the one difference is that DNKN will cater to slightly lower price-point consumer, as their coffees are not as expensive as SBUX. The stock also pays a 1.9% dividend. I like the stock near the $30 support level.

Home Improvement
After your morning coffee fix it is time to improve on the home that will not be up for sale anytime soon, because the housing market is still now where it should be. One destination for all things home improvement is Lowe's Companies (NYSE:LOW). After hitting a multi-year high in May, the stock has fallen about 14% and is now a value play again. The PEG ratio of around 0.94 and dividend yield of 2.4% makes the stock attractive. If you agree with my fix up the home versus sell the home synopsis, LOW should be a big winner.

SEE: Analyzing Retail Stocks

Apparel and Everything Else
When it is time to load up on new clothes at discount prices the next stop is Ross Stores (Nasdaq:ROST). Apparently there are a lot of people taking advantage of the discounts; the stock has been a top performer for the last few years. Since the end of 2006 ROST is up about 335% and is trading near an all-time high. With a PEG ratio of 1.40 the stock has room to run, but should be bought on weakness.

Finally, for anything else that may be needed throughout the day, there is Target Corp (NYSE:TGT). The general merchandise store offers everything from food, to movies, to personal products. The stock has been floating around an all-time high and appears ready to breakout in the near future. A PEG ratio of 1.19 along with the bullish chart makes the stock attractive and the 2.1% dividend yield is a bonus.

SEE: The 4 R's Of Investing In Retail

The Bottom Line
All four stock ideas are obviously a bet on the consumer. However, each stock goes at it in a different manner and they could trade independently of each other, based on their niche retail sectors. The key to investing in the retail sector is to diversify with several retailers that cover various niches within the sector. The four above are a good start.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center