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Consumer Confidence Rebounds: 5 Profitable Picks

Swarup Gupta
In the latest trading session, Cypress Semiconductor (CY) closed at $13.39, marking a -0.81% move from the previous day.

Consumer confidence has rebounded in April to indicate that the economy is in fine fettle. Though the increase reported appears minor, the metric is now close to the record level achieved in February. A concurrent rebound in new home sales indicates that though a slowdown is likely during the first quarter, it is likely only temporary in nature.  

This report comes at a time when markets are passing through an extended period of turmoil. Its timing, therefore, could not be better, since it indicates that the economy remains resilient in the face of several worries. Investing in consumer discretionary stocks at this point looks like an extremely smart option.

Index Nears 17-Year High Achieved in February

The Consumer Confidence Index increased from 127 in March to 128.7 in April. This was also better than the consensus estimate that the metric would decline to 126.2 this month. In March, consumer confidence had declined, snapping a two-month long winning streak. With this increase, the index is only marginally below the level of 130 achieved in February, a level last witnessed in late 2000.  

Coming to the details of the report, the proportion of respondents expecting a short-term decline in their incomes declined from 7.2% to 6.8%, the lowest level witnessed since December 2000. The Present Situation Index, a measure of current conditions, improved from 158.1 to 159.6. Meanwhile, the Expectations Index, which gauges future expectations, also advanced from 106.2 to 108.1. 

Housing Data Upbeat, Q1 Slowdown Likely Temporary

Adding to investors’ optimism was a jump in new home sales, which increased by 4% to a seasonally adjusted rate of 694,000 units in March. February’s figure was also revised significantly upward while January’s data was revised to reflect that sales remain static instead of falling by 4.7%.

This report has probably failed to change economists’ opinions on how residential investment fared in the first quarter. But it does indicate that a widely anticipated dip in economic expansion during the first quarter is likely only temporary in nature.

Recently released economic data certainly support such a view. This includes strong readings on retail sales and IHS Markit PMIs. Additionally, analysts at Nomura Holdings (NMR) think that the anticipated slip in economic growth will only be transitory. Despite this decline, real GDP growth will amount to 2.7% in 2018, according to Nomura. 

Our Choices

The rebound in consumer confidence is fresh evidence of the fact that the economy retains its resilience in the midst of several headwinds. Investors are also likely to gain solace from strong economic data even as equity markets pass through a volatile phase.

With the economy on a firm footing and consumer confidence near record levels, investing in consumer discretionary stocks looks like a profitable option. 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 based on a good Zacks Rank and VGM Score.

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' has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 41.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.5% over the last 30 days.

American Public Education, Inc. APEI is an online provider of higher education, focused primarily on serving the military and public service communities.

American Public Education has a VGM Score of B. The company has expected earnings growth of 18.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 40.4% over the last 60 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Time Warner Inc. TWX is a media and entertainment company.

Time Warner has a Zacks Rank #2 (Buy) and a VGM Score of A. The company’s expected earnings growth for the current year is 19.7%.  The Zacks Consensus Estimate for the current year has improved by 0.1% over the last 30 days.

Michael Kors Holdings Limited KORS is a global luxury lifestyle company, founded by designer Michael Kors.

Michael Kors Holdings has a Zacks Rank #2 and a VGM Score of A. The company’s expected earnings growth for the current year is 6.1%.  The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 30 days.

Columbia Sportswear Company COLM engages in the sourcing, marketing and distribution of outdoor and active lifestyle apparel, footwear, accessories and equipment in the United States and internationally.

Columbia Sportswear has a Zacks Rank #2 and a VGM Score of B. The company’s expected earnings growth for the current year is 9.1%.

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Time Warner Inc. (TWX) : Free Stock Analysis Report
 
American Public Education, Inc. (APEI) : Free Stock Analysis Report
 
Columbia Sportswear Company (COLM) : Free Stock Analysis Report
 
Guess?, Inc. (GES) : Free Stock Analysis Report
 
Michael Kors Holdings Limited (KORS) : Free Stock Analysis Report
 
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