Americans Are Finally Making More Money, and 3 Retail Stocks Will Benefit

By Lee Jackson Published Mar 18, 9:00AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

After years of stagnant earnings growth, and at one point, double-digit unemployment, the wages of workers in the United States are finally moving higher. Combined with a massive sell-off in oil, a perfect storm is brewing for some top stocks to buy. A new report from Jefferies points out that since 2013 the Federal Reserve’s labor market conditions have shown consistent month-to-month increases. Even small businesses are looking for ways to raise wages to keep good employees.

The Jefferies report also points out that the recent hike in wages for 500,000 Wal-Mart Stores Inc. (NYSE: WMT) employees could help to increase the pressure to raise the minimum wage. Higher wages and lower costs from gasoline prices put more spending money in consumers’ pockets. The Jefferies team see Dollar General Corp. (NYSE: DG), Home Depot Inc. (NYSE: HD) and Kohl’s Corp. (NYSE: KSS) as three top retail stocks that may see an immediate benefit.

Dollar General

This is one of the nation’s top discount retailers, carrying a huge inventory of items designed to appeal to a cost-conscious consumer. It announced recently that it will be accelerating new store openings next year, after losing a furious bidding war for Family Dollar Stores Inc. (NYSE: FDO) to rival Dollar Tree Inc. (NASDAQ: DLTR). The discount retail giant plans to open 730 stores this year, representing a staggering 6% square footage growth, with another 875 stores to be relocated or remodeled. These aggressive expansion plans have been applauded by analysts on Wall Street.

ALSO READ: 10 Retailers Closing the Most Stores

Dollar General currently has 11,800 stores nationwide, so the planned increase the company announced when it released earnings represents a huge 14% jump in the number of open stores in just two years. The company often focuses on smaller communities where a giant big-box store is a tougher proposition to make profitable.

Dollar General investors are paid a 1.2% dividend. The Jefferies price target for the stock is $87. The Thomson/First Call consensus price target is lower at $80.50. The stock closed on Tuesday at $74.72.

Home Depot

Home Depot remains one of the top consumer discretionary stocks to buy on Wall Street, and it is coming into the sweet spot of the year for sales. Between the spring cleaning activity, and the increase in Americans once again looking for a new home, the time is ripe for investors looking to own a top retail stock. Home Depot also is becoming a darling of some quantitative hedge funds, as some see the stock as way undervalued on an intrinsic basis.

In addition to the company’s already huge domestic presence, some Wall Street analysts have pointed to the recent troubles at Sears Holdings Corp. (NASDAQ: SHLD) and Lumber Liquidators Holdings Inc. (NYSE: LL) as even more solid impetus for the home improvement giant.

ALSO READ: 8 Analyst Stocks Under $10 With Massive Upside Calls

Home Depot investors are paid a very respectable 2.05% dividend. Jefferies puts a $135 price target on the stock, while the consensus target is $123.77. The stock closed Tuesday at $115.58 a share.

Kohl’s

This department store discount leader is another top retail stock to buy on the Jefferies list. Last fall, Kohl’s launched two key national brands in its stores: Izod (for men) and Juicy Couture (for women). The company also implemented a nationwide roll-out for the new customer loyalty program it had been testing. Plus, in an important move to increase Internet sales, Kohl’s has been improving its e-commerce capabilities.

The company recently boosted the dividend payout for investors, and the stock has seen a very solid move to the upside over the past six weeks.

Kohl’s investors are paid a tidy 2.45% dividend. The Jefferies price target is $82, well above the consensus figure of $73.90. The shares ended Tuesday at $74.33 apiece.

ALSO READ: Should Investors Buy These 4 ‘Bad News’ Stocks for Big Gains?

Earnings and wage growth have been stubbornly slow over the past five years. The recent bump is not only great for American consumers and households, it also bodes extremely well for the overall economy.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.