4 Stocks to Buy as Easing Inflation Boosts Consumer Sentiment
Consumer sentiment in the United States is gradually improving as inflation is showing signs of easing. This also saw the Fed keeping the interest rates unaltered in its June meeting. Understandably, the impressive data released last week played a major role in lifting investors’ confidence and sentiment, sending stocks on a rally.
People who had been spending cautiously for months as rising interest rates made them cut down on luxuries, are likely to start spending freely once again. Given this situation, it would be ideal to invest in discretionary stocks.
Consumer Sentiment Reflects Upbeat Consumers
The University of Michigan survey’s reading released on Jun 16 showed that consumer sentiment rose to 63.9, hitting a four-month high. The reading came just a day after fresh economic data showed that both consumer and producer price inflation declined in May.
The consumer sentiment reading in May was 59.2. June’s reading clearly reflects the upbeat sentiment among consumers. The survey also showed that consumers’ near-term inflation expectations dropped considerably in June.
According to the report, consumers’ one-year inflation expectations dropped to 3.3% in June, from 4.2% in May. This is also the lowest level since March 2021.
Its five-year inflation outlook decreased from 3.1% in May to 3% in June, remaining within the constrained range of 2.9-3.1% for 22 of the previous 23 months.
Multi-year high inflation played a major role in denting consumers’ sentiment, which is rebound with the recent decline in inflation.
Consumer price index (CPI) increased 4% year over year in May, down from April’s jump of 4.9%, per the Bureau of Labor Statistics. The May reading was also slightly lower than the consensus estimates of 4.1%.
Core CPI, which excludes the volatile food and energy prices, declined to 5.3% year over year in May from April's reading of 5.5%. This is the smallest increase since the autumn of 2021.
Besides, the Producer Price Index (PPI) reading, released on Jun 14, showed that producer prices in May declined more than expected. The Labor Department said that PPI dropped 0.3% in May after increasing 0.2% in the prior month, declining in three of the last five months.
Although, the Fed has said that it might have to go for another couple of interest rate hikes by this year-end, signs of the economic rebound are evident from the recent decision to halt rate hikes.
Additionally, raising interest rates can have various consequences. It can potentially affect consumer spending habits, increase the costs associated with borrowing, influence the pace of economic growth, and exert an influence on the performance of the stock market.
Moreover, companies in the consumer discretionary sector are expected to benefit owing to lower inflation rates and a temporary halt in interest rate increases. This is attributed to the fact that consumers will likely have a higher amount of disposable income available for non-essential purchases.
Our Choices
Therefore, from an investment perspective, we have identified four stocks in these sectors that are likely to capitalize on reduced inflationary pressure. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Lifetime Brands, Inc. LCUT is a leading designer, marketer and distributor of kitchenware, cutlery & cutting boards, bakeware & cookware, pantry ware & spices, tabletop and bath accessories. LCUT markets its products under various trade names, including Farberware, KitchenAid, Pfaltzgraff, Cuisinart, Hoffritz, Sabatier, Nautica, DBK-Daniel Boulud Kitchen, Joseph Abboud Environments, Roshco, Baker's Advantage, Kamenstein, CasaModa, Kathy Ireland, and USE.
Lifetime Brands’ expected earnings growth rate for the current year is 93.6%. The Zacks Consensus Estimate for current-year earnings has improved 9.1% over the past 60 days. LCUT presently sports a Zacks Rank #1.
Bluegreen Vacations Holding Corporation BVH operates as a vacation ownership company. BVH markets and sells vacation ownership interests and manages resorts in leisure and urban destinations.
Bluegreen Vacations’ expected earnings growth rate for the current year is 17.6%. The Zacks Consensus Estimate for current-year earnings has improved 11.8% over the past 60 days. BVH currently sports a Zacks Rank #1.
Cinemark Holdings, Inc. CNK is a leader in the motion picture exhibition industry. CNK operates 408 theatres and 4,657 screens in 38 states in the United States and internationally in 12 countries, mainly in Mexico, South and Central America.
Cinemark Holdings’ expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. CNK currently has a Zacks Rank #2.
OneSpaWorld Holdings Limited OSW is a provider and innovator in the fields of wellness, beauty, rejuvenation and transformation on cruise ships and on land. OSW’s service includes traditional and alternative massage, body and skincare treatment options, ayurvedic treatments, comprehensive hair and nail services, fitness, acupuncture, herbal medicine, pain management, and medi-spa.
OneSpaWorld Holdings’ expected earnings growth rate for the current year is 89.3%. The Zacks Consensus Estimate for current-year earnings has improved 10.4% over the past 60 days. OSW presently carries a Zacks Rank #2.
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