U.S. gross domestic product (GDP) grew more than expected in October primarily boosted by strong consumer spending. Continuous rise in consumer spending has kept the economy afloat.
What’s more, the National Retail Federation (NRF) has predicted a solid rise in holiday sales, indicating consumers’ willingness to spend further. Thus, investing in consumer discretionary stocks seems prudent as of now.
Impressive U.S. GDP Growth
The Commerce Department on Oct 30 reported that U.S. GDP grew better than expected in the third quarter, at an annualized rate of 1.9%. Though the rate was slightly lower than the second quarter’s pace of 2%, it was higher than the consensus estimate of 1.6%.
This better-than-expected economic data was a result of continued consumer spending and government expenditures. Personal consumption expenditure rose at a 2.9% annualized rate and government spending grew at 2%.
Consumer spending accounts for nearly 70% of U.S. economic activity. This includes American’s spending on new autos, food, health care, housing and other discretionary products. Overall, strong American consumer sentiment is driving the record-long domestic expansion, in spite of headwinds from a slower manufacturing economy.
Strong NRF Forecasts on Holiday Sales
The continued rise in consumer spending in October and NRF’s strong forecast indicate that consumer sentiment will remain robust and spending will continue to rise. This in turn will lead the U.S. economy to rise in the last two months of this year.
On Oct 3, NRF forecast that despite the uncertain economic environment and prevailing trade warthere will be a rise in holiday spending. As per the trade associations’ prediction, there will be an increase of between 3.8% and 4.2% in holiday season sales. NRF expects retail sales in November and December to rise between $727.9 billion and $730.7 billion.
A bigger boost can be expected in e-commerce in particular, as online sales predicted by NRF can grow between 11% and 14%, or between $16.2 billion to $166.9 billion. On the other hand, retailers are looking for alternative options to bypass the additional cost from a rise in tariffs. This will keep the cost of goods in check and attract consumers to buy more.
Grab These 5 Stocks Now
With consumer spending expected to increase in the near term, we have selected four solid stocks from the consumer discretionary sector. These companies flaunt a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs, Inc. CROX is a publicly traded company that designs, develops, manufactures, markets and distributes casual lifestyle footwear and accessories for men, women and children. The company’s expected earnings growth rate for the current year is 80.2%, which is above the industry’s projected rally of 4.7%. The Zacks Consensus Estimate for current-year earnings has improved 10.7% over the past 60 days.
Crocs has outperformed the Textile - Apparelindustry over the past one-year period (+66% vs -8.8%).
Sony Corporation SNE is a publicly traded company that designs, develops, produces and sells electronic equipment, instruments, and devices for the consumer, professional and industrial markets globally. The company’s expected earnings growth rate for the next year is 12.8%, which is above the industry’s projected rally of 11.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the past 60 days.
Sony has outperformed the Audio Video Productionindustry over the past one-year period (+13.3% vs +9.5%).
Deckers Outdoor Corporation DECK is a publicly traded company that designs, markets, and distributes footwear, apparel and accessories for casual lifestyle use and high performance activities. The company’s expected earnings growth rate for the current year is 2.6%. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the past 60 days.
Deckers Outdoor has outperformed the Shoes and Retail Apparelindustry over the quarter-to-date period (+3.8% vs -2.7%).
Guess', Inc. GES is a publicly traded company that designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women and children. The company’s expected earnings growth rate for the current year is 37.8%, which is above the industry’s projected rally of 4.7%. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the past 60 days.
Guess’ has outperformed the Textile - Apparelindustry over the past three month period (+1.8% vs +1.4%).
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