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GDP Growth Remains Solid in Q3: 5 Top-Ranked Picks

Swarup Gupta
Consumer spending, which accounts for around two-thirds of GDP, increased at an annual pace of 4% in the third quarter.

The first estimate for third-quarter GDP indicates that the economy continues to expand, though at a marginally moderate pace as the year nears its end. Despite the decline, growth came in slightly higher than estimates. Inflation also moderated from last quarter’s pace, indicating that the Fed can stick to its steady pace of rate increases.

Meanwhile, consumer spending picked up pace, helping to negate a significant drop in business expenditure. Overall, growth remains solid. Currently, economists estimate that the economy will continue to expand at 3% in the fourth quarter. Investing in consumer discretionary stocks continues to remain a smart option at this point.

Consumer Expenditure Grows Stronger

According to the advance estimate from the Bureau of Economic Analysis, U.S. GDP increased 3.5% in the third quarter. This is marginally higher than the estimated level of 3.4%. However, it does represent a slight decline from the second quarter’s 4.2% pace, the fastest quarterly increase since the third quarter of 2014.

At the same time, the economy’s expansion over the last two quarters has been the fastest in four years. Notably, consumer spending, which accounts for around two-thirds of GDP, increased at an annual pace of 4% in the third quarter. This marked a significant improvement from the 3.8% pace witnessed in the prior quarter.

Further, this is the sharpest pace of growth in consumer expenditure witnessed in around four years. A higher level of spending has been fueled by a robust job market and a steady increase in wages. But its primary catalyst has been substantial tax cuts implemented by the Trump administration.  

Inflation Moderates, Rate Hike on Track

Meanwhile, government spending increased by 3.3% even as defense expenditure picked up 4.6%. However, it was the jump in consumer spending which primarily negated the impact of a decline in residential and business investment. At the same time, private inventories contributed 2.1% toward expansion in third-quarter GDP.

More importantly, PCE price index increased at an annual pace of 1.6%, lower than the 2% pace recorded in the last quarter. The core PCE price index also increased at an annual rate of 1.6%, lower than the 2.1% pace experienced in the second quarter. The dip in inflation indicates that Fed Chair Powell can stick to his gradual pace of rate increases.

Several economists believe that growth may have peaked during the second quarter. This is because it was during this period that the economy received the greatest impetus from Trump’s tax cuts. However, economic expansion remains robust and is unlikely to fall below 3% in the fourth quarter.

Our Choices

Initial estimates indicate that despite a slight decline, growth remains robust in the third quarter. Further, indications are rife that economic expansion will remain solid until the end of this year. Consumer spending, which accounts for a substantial portion of economic output, is the primary driver behind overall expansion.

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

The Marcus Corporation MCS is an owner and operator of hotels, resorts and movie theaters.

The Marcus Corporation has a VGM Score of A. The company has expected earnings growth of 17.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.1% over the last 30 days. 

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

Rent-A-Center has a VGM Score of A. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 21% over the last 60 days.

Boyd Gaming Corporation BYD is a multi-jurisdictional gaming company.

Boyd Gaming has a VGM Score of B. The company’s expected earnings growth for the current year is 36.2% The Zacks Consensus Estimate for the current year has improved by 10.4% over the last 30 days.

Deckers Outdoor Corporation DECK is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports, and other lifestyle-related activities.

Deckers Outdoor has a VGM Score of B. The company’s projected growth rate for the current year is 13.7%. The Zacks Consensus Estimate for the current year has improved by 0.3% over the last 30 days.  

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 VGM Score of B. The company’s expected earnings growth for the current year is 48.1%. The Zacks Consensus Estimate for the current year has improved by 1% over the last 60 days.

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Boyd Gaming Corporation (BYD) : Free Stock Analysis Report
 
Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
 
Marcus Corporation (The) (MCS) : Free Stock Analysis Report
 
Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report
 
Guess?, Inc. (GES) : Free Stock Analysis Report
 
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