4 Leisure Stocks to Cash in on a Robust U.S. Economy
With stronger-than-expected U.S economic growth in the second quarter, investors may want to take a look at the leisure space that primarily thrives on overall economic growth and consumer spending.
A steady rise in wages, lower unemployment and upbeat consumer confidence indicate that leisure stocks stand to rake in handsome gains. This is because these stocks are part of a cyclical industry where demand for goods and services is relatively elastic and any significant change in the general market often affect consumers’ preference.
Per the second estimate reported by the Bureau of Economic Analysis, gross domestic product (GDP) increased at an annualized rate of 4.2% in the second quarter, compared with 2.2% growth in the first quarter.
Real GDP growth in the second quarter was driven by increased personal consumption expenditures (“PCE”), non-residential fixed investment, exports and higher government spending. Further, we are optimistic about the overall economy’s prosperity buoyed by better-than-expected consumer sentiment. Overall the economy expanded 3.2% in the first half of 2018 and is set to achieve Trump administration’s annual growth target of 3%.
How Will Leisure Space Gain From Economic Growth?
The leisure space comprising of companies providing recreational products and services such as swimming pools, golf courses, boats, outdoor spaces, to name a few, is expected to gain from increased consumer spending.
The University of Michigan's monthly survey shows that consumer sentiment came in at 96.2% at the end of August, better than the previously anticipated level of 95.5. Moreover, personal income is rising modestly and consequently, households have enough additional funds to spend on soft leisure goods but not adequate for investment in big things.
Meanwhile, Federal Reserve raised its outlook on U.S. economic growth. The median real GDP forecast increased from 2.7% to 2.8% for the current year. This is also likely to support the industry’s growth in 2018.
Also, according to a report by Statista, revenues at the sports and outdoor space are expected to witness a compound annual growth rate (CAGR) of 9.9% from 2018 to 2022. User penetration, which is currently at 8.7%, is anticipated to touch 10.4% in 2022. All these indicate that the industry stands to enjoy lucrative gains, going forward.
Leisure & Recreation Product Industry on Growth Trajectory
The escalating demand for leisure is evident from the industry’s exponential growth. The Zacks Leisure and Recreation Products Industry, being a 15-stock group within the broader Zacks Consumer Discretionary Sector, has outperformed the S&P 500 and its sector over the past year.
While stocks in this industry have collectively gained 33.3% over the past year, the Zacks S&P 500 Composite and the Zacks Consumer Discretionary Sector have rallied 17.7% and 6.4%, respectively.
Picking the Right Stocks
With the help of the Zacks Stock Screener, we have zeroed in on leisure stocks with a favorable Zacks Rank and northward earnings estimate revisions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Johnson Outdoors Inc. JOUT is a leading global outdoor recreation company that provides adventurous, innovative, top-quality products. Currently, the company sports a Zacks Rank #1. In the last 60 days, one earnings estimate moved north, while none moved in the opposite direction for the current year. The Zacks Consensus Estimate for earnings rose 11.4% in the same period. The stock’s expected earnings growth rate for the current year is 46.4%.
Callaway Golf Company ELY, a provider of golf putts, flaunts a Zacks Rank #1. Over the last 60 days, 10 analysts have revised estimates upwards for the current year while none were revised downwards. Consequently, the Zacks Consensus Estimate for the current year has risen from 96 cents to $1 in the period. For 2018, earnings are projected to grow 88.7% year over year.
Marine Products Corporation MPX is the third largest distributor of sterndrive powerboats in the United States. For 2018, the Zacks Consensus Estimate for earnings has moved from 78 cents to 82 cents over the past two months, due to two upward revisions against no southward revisions. Earnings for the year is also projected to grow 36.7% year over year. Marine Products sports a Zacks Rank #1.
The largest distributor of swimming pool equipment, Pool Corporation POOL, carries a Zacks Rank #2 (Buy). The consensus estimate pegs earnings for the current year at $5.54, suggesting growth of 38.9% from the year-ago quarter. Further, the company witnessed two upward revisions in its earnings estimate while none were revised downwards.
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Johnson Outdoors Inc. (JOUT) : Free Stock Analysis Report
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