3 Reasons Retail Is Ready to Rally

Retail is one of the most flimsy, fickle sectors around, and low-risk investors tend to steer clear. But with another positive report this week, it seems that retail might be back on the rise. Let's take a closer look to see whether retail might be ready to roar.

The details
Retail sales clocked in at 0.6% growth for May, according to a Thursday report from the Commerce Department. May's numbers beat analyst expectations and mark another month of increases for this metric. After three days of declines, the Dow Jones Industrial Index (DJINDICES: ^DJI  ) and S&P 500 (SNPINDEX: ^GSPC  ) clawed back up 1.48% and 1.21%, respectively.

Although sales have headed steadily higher since the Great Recession, growth patterns have remained more erratic, with adjusted growth tapering off after 2011 highs.

US Retail Sales Growth Chart

US Retail Sales Growth data by YCharts

But Mr. Market loves to hate this sector, and there are more than a few reasons to believe in retail's rally.

Forget gas
As the newest report indicates, retail is making up ground without gas price spikes. Low energy prices have stunted sales across the board, but retail's most recent increase comes in spite of a 1.6% drop in gasoline station sales in the last year.

US Retail Gas Price Chart

US Retail Gas Price data by YCharts

Rev up retail
Auto sales are up 8.5% since May 2012 and could continue to grow as consumers head to the dealerships after holding off during tougher times. General Motors (NYSE: GM  ) reported seasonally adjusted 3.1% U.S. sales growth in May, its biggest monthly gain since September 2008. According to VP of U.S. Sales Kurt McNeil, "The gradual recovery in the economy is becoming more broad-based." For Ford (NYSE: F  ) , sales clocked in a whopping 14% higher than May 2012. The Blue Oval's new fuel-efficient pickups pushed F-Series sales up 31%, its highest numbers since March 2007.

If you build it, they will come ... and buy.
Housing reports are skyrocketing
, and a 10.1% annual increase in building materials and garden equipment store sales points to a secret secondary effect of a housing market recovery. Home Depot's (NYSE: HD  ) first-quarter sales headed up a seasonally adjusted 7.4%, while its net income increased a seasonally adjusted 18.5%. Analysts have alluded to a supply-side "housing squeeze," another sign that the housing market needs what building supplies retailers are selling.

Is retail back?
Retail bulls are used to being contrarian, and their successes have often gone underrated in the investing world. With more positive retail reports rolling in, it might just be time to ride the newest retail rally.

Can Ford keep fueling retail?
If you're concerned that Ford's turnaround has run its course, relax -- there's good reason to think that the Blue Oval still has big growth opportunities ahead. The Fool's premium Ford research service outlines those opportunities. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place -- click here to get started now.


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