With the spring underway, investors may want to focus on a few travel and leisure companies as these primarily cater to warm weather activities. Demand for cruises, outdoor activities, travel, ski, boating, to name a few, generally accelerate during this time of the year. Apart from favorable weather, spring break holidays also drive demand for such services.
However, it should be noted that this demand is purely subject to general economic conditions. Elastic demand is highly dependent on the business cycle and derives momentum from a healthy labor market, rising wages and growing disposable income.
Current Economic Scenario
Per a few analysts, the U.S. economy in 2019 can be characterized as a Goldilocks scenario, where the system is operating in an optimal state by providing full employment and economic stability. The economy is neither too dull to cause recession, nor too bright to result in inflation.
The U.S. economic outlook is healthy according to key economic indicators. The economy has an ideal GDP growth rate of 2-3% and moderately rising prices, as measured by the core inflation rate. The Federal Reserve has set the target inflation rate for 2019 at 2%.
Although, the country’s GDP growth is likely to slow to growth of 2.1% in 2019 from 3% in 2018 (per the Federal Open Market Committee meeting), unemployment, which is at 3.7%, will continue to support overall economic spending.
In the fourth quarter of 2018, personal consumption expenditure (PCE) contributed 1.66 percentage points to overall growth and rose 2.5%. Although 2019 may witness a subdued economic growth, recession and restrained demand is unlikely. Both Fed's monetary policy and Congress' fiscal policy aim to create enough demand to keep the economy whirring at a healthy pace.
Strong Demand to Facilitate Growth in the Leisure Space
Apart from higher personal expenditure, increased demand for leisure products and services is also aiding the leisure industry of late. According to a report by Statista, revenues at the sports and outdoor space are expected to witness a CAGR of 9% from 2018 to 2023. User penetration stood at 12.2% in 2018 and is expected to reach 16.7% by 2023.
Per Deloitte, retailers of leisure goods have been witnessing robust growth since 2010. Furthermore, a report by Global Market Insights suggests that the boating market share in the United States will surpass $28.5 billion by 2024. National Marine Manufacturers Association had also mentioned that boat manufacturers are continuously increasing production to support high demand. Demand for powerboats, including small sterndrive, wakeboard boats and smaller fiberglass boats with jet technology is rapidly increasing.
The cruise industry in 2019 is likely to benefit from increased travel demand. The role of technology is playing a massive role in driving demand for cruises. The companies continue to make use of digital tools for marketing, product development and enhancing consumer experience.
Moreover, Royal Caribbean Cruises Ltd. RCL noted that the Wave Season has witnessed a solid start and overall booking in 2019 is likely to exceed the record mark in 2018. Per the Cruise Lines International Association, the cruise industry is expected to grow through 2019 with 30 million cruisers, up 6% from 28.2 million in 2018.
Further, 2018 has been a record-breaking year for the lodging industry given an optimal demand supply balance. Per CBRE researchers, the hotel industry is likely to continue on a growth trajectory in 2019. Additionally, CBRE anticipates overall returns on hotels to be the highest for any commercial real-estate sector over the next three years.
Picking the Right Stocks
With the help of the Zacks Stock Screener, we have zeroed in on five promising stocks from the leisure industry that can lift your spring spirit. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have solid expected earnings growth rate for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Clarus Corporation CLAR, a developer, manufacturer and distributor of outdoor equipment and lifestyle products related to climb, ski, mountain, sport, and skincare, carries a Zacks Rank #2. The company is anticipated to gain from the spring season when demand for skiing increases due to favorable weather conditions. For 2019, the Zacks Consensus Estimate for the company’s earnings is pegged at 80 cents, suggesting year-over-year increase of 25%.
A Zacks Rank #2 stock, SeaWorld Entertainment, Inc. SEAS, has been witnessing positive earnings estimate revisions for the current year. Over the past month, analysts have raised earnings estimates by 1.6%, suggesting that the company is expected to provide better returns in the future. As it is, the spring season and upbeat consumer confidence is likely to benefit SeaWorld’s top line as it provides consumers with typical leisure-oriented theme parks.
Lindblad Expeditions Holdings, Inc. LIND provides expedition cruising and adventure travel services. It delivers voyages through a fleet of eight owned expedition ships and five seasonal charter vessels under the Lindblad brand and presents a perfect adventure opportunity. The company carries a Zacks Rank #2. For 2019, the Zacks Consensus Estimate for the company’s earnings is pegged at 44 cents, suggesting year-over-year increase of 83.3%.
Live Nation Entertainment, Inc. LYV operates as a live entertainment company. It operates through concerts, sponsorship & advertising, and ticketing segments. Demand for the company’s products is expected to receive a boost from the strong consumer spending. Earnings estimates for 2019 have been revised upward by 12.8% to 44 cents over the last 30 days, reflecting analysts’ optimism surrounding the company’s future earnings potential. In 2018, the company incurred a loss of 9 cents. Live Nation carries a Zacks Rank #2.
Renowned boat maker, Malibu Boats, Inc. MBUU, carries a Zacks Rank #2. For 2019, the Zacks Consensus Estimate for earnings has moved from $3.40 to $3.49 over the past two months, due to five upward revisions against none in the opposite direction. For 2019, earnings are predicted to surge 34.2% year over year.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
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Malibu Boats, Inc. (MBUU) : Free Stock Analysis Report
Lindblad Expeditions Holdings Inc. (LIND) : Free Stock Analysis Report
SeaWorld Entertainment, Inc. (SEAS) : Free Stock Analysis Report
Live Nation Entertainment, Inc. (LYV) : Free Stock Analysis Report
Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
Clarus Corporation (CLAR) : Free Stock Analysis Report
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