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American Consumers Unfazed by Virus Scare: 5 Best Choices

Tirthankar Chakraborty

As fears of a pandemic and its subsequent impact on global economic growth mount, investors have started to play it safe by shunning risky assets. The rapid spread of the virus beyond China has rattled markets so far in February. The disease has claimed more than 2,700 lives and infected over 80,000. Several well-known names like Apple, Nike, United Airlines and Mastercard have raised concerns about the impact of coronavirus on their earnings.

Braving the scare, American consumers’ confidence continues to grow. The reading is at a six-month high now. According to the Conference Board, its index of consumer confidence rose to 130.7 in February from 130.4 last month. To top it, the so-called future expectations index, based on consumers’ outlook for income, business and labor market conditions over the next six months, climbed from 101.4 to 107.8, its highest level since last July.

But what has boosted consumer confidence? The answer lies in the fact that consumers are more concerned about things that affect their finances directly, like labor market conditions, wages, interest rates, and so on.

According to the Labor Department, the United States added a massive 225,000 jobs last month, way higher than analyst expectations of 160,000 jobs. It was also up from December’s upwardly revised number of 147,000. In addition to December’s positive revision, non-farm payrolls for the month of November rose by 5,000 to 256,000. And that means the economy added an average of 211,000 new jobs in the past three months, a significant rise from last summer. The unemployment rate, in the meantime, continues to be near a 50-year low.

Further, wage growth has improved. Average hourly earnings rose 3.1% in January. Wages, in fact, surpassed estimates of 3% growth. And when it comes to interest rates, the Fed is cautiously optimistic about holding interest rates steady despite the coronavirus onslaught. A low interest rate environment bodes well for consumers as it makes borrowings more feasible.

Why Does Consumer Confidence Matter?

The consumer confidence number helps predict consumer spending for the next three to six months. Thus, more the confidence households generate, the more will they spend. Notably, consumer spending accounts for roughly 70% of the U.S. economy, which isn’t a petty number.

Lynn Franco, senior director of economic indicators at The Conference Board also said that “consumers’ short-term expectations improved, and when coupled with solid employment growth, should be enough to continue to support spending and economic growth in the near term.”

5 Solid Choices

Stocks of consumer discretionary companies in particular are well poised to grow on signs of renewed strength in consumer spending. We have, thus, selected five consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The stocks also boast a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Retailer of casual apparel, footwear, and accessories, The Buckle, Inc. BKE has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved up 2% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 4.8% and 4.6%, respectively.

Chipotle Mexican Grill, Inc. CMG has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved 3.4% north over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 11.5% and 30.9%, respectively.

Deckers Outdoor Corporation DECK, known for designing and distributing footwear, apparel, and accessories, has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has climbed 5.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 7.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Manufacturer of recreational powerboats, Malibu Boats, Inc. MBUU has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has risen 4.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 9.8%.

Designer of lifestyle products, Ralph Lauren Corporation RL has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved 1.7% up over the past 60 days. The company’s expected earnings growth rate for the current year is 8.8%.

Shares of Buckle, Chipotle Mexican Grill, Deckers Outdoor, Malibu Boats and Ralph Lauren have gained 13.6%, 103%, 238.3%, 116.4% and 28.8%, respectively, over the past three-year period. Have a look –

 

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Click to get this free report Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report Ralph Lauren Corporation (RL) : Free Stock Analysis Report Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report Buckle, Inc. (The) (BKE) : Free Stock Analysis Report Malibu Boats, Inc. (MBUU) : Free Stock Analysis Report To read this article on Zacks.com click here.