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Consumer Confidence Hits 18-Year High: 5 Top-Ranked Picks

Swarup Gupta
The index surged, primarily due to optimism generated by a robust jobs market and a strong economy.

The Conference Board’s consumer confidence index surged to its highest level in 18 years in September. The reading was not much lower than the all-time high, primarily due to optimism generated by a robust jobs market and a strong economy. It seems these factors are successfully outweighing trade tensions, which are roiling equity markets at the moment.

The report is an extremely positive sign ahead of the holiday shopping season. It is significantly supportive of an increase in household wealth and higher consumer spending. Moreover, it comes on the back of an upbeat reading for the University of Michigan’s consumer sentiment index. Investing in consumer discretionary stocks looks profitable at this point.

Index Not Far From All-Time High

The consumer confidence index increased from 134.7 in August to 138.4 in September. The index was projected to decline to 132.7. This is the highest level recorded since September 2000, when the Internet boom was nearing its end. The index is also not too far off from the all-time high of 144.7 recorded in the month of May of the same year.

The present situation index increased from 172.8 to 173.1. Also, the expectations index advanced substantially, from 109.3 to 115.3. According to the Conference Board’s Director of Economic Indicators Lynn Franco, the surge in the expectations index indicates “solid economic growth exceeding 3.0 percent for the remainder of the year.”

Strong Economy, Jobs Market Boosts Expectations

Lynn added that consumers’ opinion of current conditions was favorable because of a strong economy and a robust labor market. Optimism surrounding the labor market is clear from the improvement in the labor differential. This gauge, which is the gap between respondents, who think jobs are difficult to secure and those who think jobs are plentiful, increased from 30.2 in August to 32.5 in September.

This is the highest level witnessed since January 2001 and comes on the back of solid jobless claims numbers. For the week ending Sep 14, jobless claims came in at 201,000, the lowest level recorded in almost 49 years. With the jobless rate at 3.9%, most economists think the job market is near full employment.

Meanwhile, upbeat consumer sentiment and a strong economy seem to be feeding off each other. According to forecasting company Macroeconomic Advisers, GDP likely increased at an annual rate of 3.3% in the current quarter. According to the Federal Reserve Bank of Atlanta's GDPNow model, the economy expanded at 4.4% in the third quarter.

Our Choices

The unexpected jump in the consumer confidence index is yet another sign that consumer spending is likely to remain strong. A robust job market and a strong economy are the factors supporting such upbeat sentiment. Several gauges indicate that the economy will likely remain strong in the third quarter.

Investing in consumer discretionary stocks looks like a smart option at this point. 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 VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Guess?, Inc. GES designs, markets, distributes and licenses casual apparel and accessories for men, women and children as per the American lifestyle and European fashion sensibilities.

Guess?’s projected growth rate for the current year is 48.1%. The Zacks Consensus Estimate for the current year has improved 3% over the last 30 days.

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

Rent-A-Center’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 11.4% over the last 30 days.

Johnson Outdoors Inc. JOUT is a designer, manufacturer and marketer of watercraft, diving, outdoor equipment and marine electronics products on a global basis.

Johnson Outdoors’ projected growth rate for the current year is 46.4%. The Zacks Consensus Estimate for the current year has improved 11.4% over the last 60 days.

Callaway Golf Company ELY is a designer, manufacturer and seller of golf clubs and related accessories.

Callaway Golf’s projected growth rate for the current year is 87.9%. The Zacks Consensus Estimate for the current year has improved 23.5% over the last 60 days.

Summer Infant, Inc. SUMR is a designer, marketer and distributor of branded durable juvenile health, safety and wellness products (for ages up to three years), which are sold principally to large U.S. retailers.

Summer Infant’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 50% over the last 60 days.

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Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
 
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