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5 Stocks to Buy as Consumer Confidence Hits 8-Month High

Swarup Gupta

Consumer confidence surged this month, executing a strong rebound from the slump suffered in June. The report provides fresh evidence of the fact that American consumers have faith in the economy even when the Federal Reserve is raising serious doubts over its future.

Two other recently released reports also indicate that consumer spending is in good shape. The first reading of second-quarter GDP exceeded most estimates largely due to a spurt in consumer spending. A separate report revealed that consumer spending and prices had risen moderately in June.

Consumer spending, which makes up more than two-thirds of U.S. GDP, will likely continue to power the economy going forward. This is why it makes good sense to invest in consumer discretionary stocks at this point.

Consumer Confidence Nears 18-Year High

In July, consumer confidence surged from the upwardly revised level of 124.3 to hit 135.7. In doing so, it easily exceeded the estimated level of 126. The index had slumped from the downwardly revised level of 131.3 to initially touch 121.5 last month. This is why this month’s increase represents a strong rebound.

In fact, the metric is now only marginally below the 18-year high of 137.9 experienced in October 2018 and the highest since November. The present situation index, which gauges how consumers perceive the current state of the economy, increased from 164.3 to 170.9.

Another metric, which gauges the outlook for the next six months, also experienced an increase. Both these indexes are only a touch shy of records set during the record-long economic expansion which started in mid-2009.

Personal Income, Spending Rise in June

In June, consumer spending increased 0.3%. An increase in expenditure on services and other goods helped to negate a decline in motor vehicle purchases. Further, the metric was revised upward for May to reflect a 0.5% increase instead of the previous estimate of a 0.4% advance.

After accounting for inflation, consumer spending increased 0.2% in June. Termed as real consumer spending, this metric increased 0.3% in May. Some analysts think the small increase in the metric in June likely indicates that consumption will fall in the third quarter after strong growth in the April-June period.

However, it is crucial to note that July’s increase in spending was powered by a 0.4% rise in personal income. This was identical to the increase experienced in May. While wages increased by 0.5%, savings surged from the $1.31 trillion recorded in May to hit $1.34 trillion in June.

A strong labor market and steady wage gains will likely continue to fuel consumer expenditure in the months ahead. The U.S. economy added 224,000 jobs in June, exceeding the estimate of 161,000. Unemployment inched up to 3.7% as 335,000 individuals joined the workforce, but remained close to a 50-year low.

Our Choices

The surge in consumer confidence experienced this month indicates that consumption will likely remain strong in the months ahead. A robust labor market and continuing wage gains are expected to boost the metric going forward. The confidence exuded by the American consumer strikes a stark contrast with the doubts that the central bank continues to express about the economy. 

Investing in consumer discretionary stocks looks prudent. However, picking winning stocks may prove to be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

BJ's Wholesale Club BJ is a warehouse club on the East Coast of the United States.

BJ's Wholesale Club has a Zacks Rank #1 and VGM Score of B. The company’s expected earnings growth for the current year is 12.6%.The Zacks Consensus Estimate for the current year has improved by 1.4% over the past 30 days.

Laureate Education, Inc. LAUR offers higher education services and programs through a number of universities and higher education institutions.

Laureate Education has a VGM Score of A. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 1.9% over the past 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rent-A-Center, Inc. RCII is the largest rent-to-own operator in the United States offering durable goods such as consumer electronics, appliances, computers, furniture and accessories.

Rent-A-Center has a Zacks Rank #2 (Buy) and VGM Score of A. The company’s expected earnings growth for the current year is more than 100%.

Whirlpool Corporation WHR is one of the largest manufacturers of home appliances in the world.

Whirlpool has a Zacks Rank #2 and VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 3.2% over the past 30 days.

DISH Network Corporation DISH is a holding company and operates two primary business segments — Pay-TV and Wireless.

DISH Network has a Zacks Rank #2 and VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 0.6% over the past 30 days.

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Whirlpool Corporation (WHR) : Free Stock Analysis Report
DISH Network Corporation (DISH) : Free Stock Analysis Report
Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
BJ's Wholesale Club Holdings, Inc. (BJ) : Free Stock Analysis Report
Laureate Education Inc. (LAUR) : Free Stock Analysis Report
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