Retail sales returned another soft reading in September, weighed down by a drastic drop in spending at bars and restaurants. Spending also dropped at grocery stores and gas stations, leading to fears of a possible economic slowdown. Only a jump in spending at auto dealers staved off an overall decline.

However, experts feel that the decline in sales was largely attributable to the impact of Hurricane Florence. Restaurant sales fell but have remained robust over the past year.

Also, core retail sales experienced a healthy increase, indicating that consumer spending remains robust. Investing in auto and parts dealers, the leading gainers for the last month looks prudent at this point.

Sales Remain Soft, Restaurant Sales Plunge

According to the Department of Commerce, retail sales increased by 0.1% during the month of September, below the consensus estimate of a jump of 0.6%. The reading was in line with August’s sluggish increase of 0.1%. Excluding motor vehicles and parts, retail sales decreased by 0.1%.

Sales may have been constrained by the impact of Hurricane Florence. But the soft reading was largely attributable to a 1.8% drop in sales at food services and drinking places. This is the largest decline since December 2016. However, restaurant sales have still increased 7.1% over the past 12 months.

Auto Sales Surge, Spending Remains Robust

As is evident, the headline number would have undergone a decline but for a good month at auto dealers and parts sellers. Sales at motor vehicle and parts dealers increased 0.8% last month. However, sales at gasoline stations declined by 0.8%, indicating that fuel prices had somewhat moderated.

Sales at clothing and accessories stores increased by 0.5%, rebounding from a 2.8% plunge in August. Nonstore retailers experienced a 1.1% increase in sales, reflecting the power of online retail. Building material store sales inched up 0.1%. Sales at musical instrument, hobby and book stores increased 0.7%.  

Moreover, core retail sales, which exclude automobiles, building materials, gasoline and food services increased by 0.5%. This metric closely tracks the consumer spending portion of GDP. This strong reading indicates that robust consumer spending will likely offset the impact of trade tensions and weakness in the housing market.

Our Choices

Despite retail sales coming in soft for the second consecutive month, the robust nature of consumer spending remains intact. This is evident from the strong reading returned by core retail sales. Further, the dull nature of sales is largely attributable to the impact of Hurricane Florence.

This is why it makes sense to invest in stocks of motor vehicle and parts dealers, the leading gainers for last month. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

America's Car-Mart, Inc. (CRMT - Free Report) is one of the largest automotive retailers in the United States.

America's Car-Mart carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of B. The company has expected earnings growth of 48.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 13.9% over the last 60 days.

Rush Enterprises, Inc. (RUSHA - Free Report) is an integrated retailer of commercial vehicles and related services, operating in the United States.

Rush Enterprises has a VGM Score of A. The company’s expected earnings growth for the current year is 46.6%. The stock sports a Zacks Rank #1.

AutoZone, Inc. (AZO - Free Report) is one of the nation’s leading specialty retailers of automotive replacement parts and accessories.

AutoZone has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 16% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 30 days.

Asbury Automotive Group, Inc. (ABG - Free Report) is one of the largest automotive retailers in the United States.

Asbury Automotive carries a Zacks Rank #2 and has a VGM Score of A. The company has expected earnings growth of 21.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.6% over the last 60 days.

Advance Auto Parts, Inc. (AAP - Free Report) is primarily engaged in selling replacement parts (excluding tires), accessories, batteries and maintenance items for domestic and imported vehicles.

Advance Auto Parts carries a Zacks Rank #2 and has a VGM Score of B. The company has expected earnings growth of 29.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.3% over the last 30 days.