U.S. stocks snapped the three-day winning streak, plunging on Sep 20 after recessionary fears gripped investors. A yield curve inversion spooked markets and signs of a slowdown in global growth haven’t improved matters. Further, recessionary talk is gaining currency and discussions of this variety are usually a self-fulfilling kind.
The ground reality is, however, rather different. Economic indicators remain largely robust, with labor markets, in particular, reflecting significant strength. The bulk of the official data being received at this point also only indicates that a slowdown, and not a recession, is in the works.
This is why it still makes good sense to invest in consumer discretionary stocks, which derive strength from personal spending, universally acknowledged as the engine of the U.S. economy.
Labor Market Remains Robust
Payroll figures, a key metric of economic health, remain in great shape. As a result, unemployment lingers near a 50-year low. In July, the figure was around 3.7%, only fractionally higher than the 3.6% pace it clocked in during spring. Of course, naysayers will argue that even an infinitesimal increase in unemployment could signal a recession.
However, as a rule, economists consider a 0.5% increase over the lowest pace recorded in the past 12 months. This means that at the current pace, only a rate of unemployment above 4% would signal an impending recession.
A more prudent stance to take would possibly be that it isn’t very helpful in signaling a recession, since only minute moves would be made on the path to a genuine economic slump.
Slowdown, Not Recession Underway
A large portion of the fears over a recession can be attributed to trade tensions and global growth worries. Major economies, ranging from China, Britain and Germany are all witnessing a major decline in growth metrics. Most economists believe such weaknesses will eventually start hurting the U.S. economy.
What this actually means is that such factors will act as a drag on the U.S. economy, leading to a slowdown. A full-blown recession remains far away. Most private forecasts, as well as the Fed, expect economic growth to average around 2% over the remainder of 2019 as well as into next year. Other economic gauges do not indicate an impending recession, per Capital Economics.
Recessionary fears may have gripped markets but the U.S. economy continues to remain robust. The labor market remains resilient and key metrics indicate that an economic slowdown, not a recession is in progress.
This is why investing in consumer discretionary stocks remains a prudent choice. However, picking winning stocks may 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, each of which has a Zacks Rank #1 (Strong Buy) and good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.
Skechers U.S.A., Inc. SKX designs, develops and markets a diverse range of lifestyle footwear for men, women and children, as well as performance footwear for men and women.
Skechers has a VGM Score of A. The company’s projected growth rate for the current year is 17.4%. The Zacks Consensus Estimate for the current year has improved by 3.9% over the past 30 days.
Rent-A-Center, Inc. RCII is a lessor of household durable goods, which are provided on a rent-to-own basis.
Rent-A-Center has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 6.6% over the past 30 days.
Crocs, Inc. CROX is a designer, developer, manufacturer and distributor of casual footwear for men, women and children.
Crocs has a VGM Score of B. The company’s projected growth rate for the current year is 62.8%. The Zacks Consensus Estimate for the current year has improved by 12.5% over the past 30 days.
Lincoln Educational Services Corporation LINC is a leading and diversified for-profit provider of a career-oriented post-secondary education in the United States.
Lincoln Educational Services has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 15.4% over the past 30 days.
Funko, Inc. FNKO is a pop culture consumer products company.
Funko has a VGM Score of B. The company’s projected growth rate for the current year is 48.9%. The Zacks Consensus Estimate for the current year has improved by 10.7% over the past 30 days.
Weight Watchers International, Inc. WW is a global provider of weight control programs.
Weight Watchers has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 11.2% over the past 30 days.
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Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
Lincoln Educational Services Corporation (LINC) : Free Stock Analysis Report
Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report
Crocs, Inc. (CROX) : Free Stock Analysis Report
Funko, Inc. (FNKO) : Free Stock Analysis Report
Weight Watchers International Inc (WW) : Free Stock Analysis Report
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