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US Consumer Confidence Near 18-Year High: 5 Winners

Tirthankar Chakraborty

American consumers are getting more confident about the economy than the Fed. Consumer confidence crushed expectations and approached an 18-year high. Strength in the labor market, low inflation rate and mostly lower oil prices buoyed optimism on household finances and the economy.

Naturally, things have been looking up for consumer stocks. Stocks of consumer discretionary companies are poised to grow on signs of renewed strength in consumer spending.

Americans Feel Much Better About the Economy

The consumer confidence index climbed to 135.7 in July from a revised 124.3 in June, according to the Conference Board.

The key economic indicator that measures attitudes on economic prospects exceeded analysts’ expectations of a 126 reading and now sits slightly below an 18-year high of 137.9, achieved last October.

 

And people’s confidence in present situations improved from 164.3 in June to 170.9 in July. The future expectations index for the next six months also improved. Both the indexes are currently near their highest level since the economy started to expand in mid-2009.

Confidence had taken a beating last month after trade talks between the United States and China hit an impasse, with President Trump threatening to impose tariffs on any Mexican import due to dispute over security at the Southern border. But, this month consumers’ sentiment about their financial well-being improved drastically.

What Drove the Confidence?

There are reasons why confidence has bounced back. Household optimism was largely driven by strength in the labor market. The United States added a heartening 224,000 jobs last month, way higher than analysts’ expectations of 170,000 jobs, per the Labor Department.

Unemployment rate also edged up to 3.7% from 3.6% but is still near a 50-year low. The U-6 rate ticked up to 7.2%. However, the rate of underemployment is below where it was a few years back. What’s more, the phenomenal jobs report shows that hourly pay has gone up by 6 cents to $27.90. In the last 12 months, wage gains held steady at 3.1%.

The rate of inflation, in the meantime, may be seen by the Fed as too low, but it certainly increases the purchasing power of households. The core PCE inflation, which excludes energy and food prices, rose 1.8% for the second quarter and was still below the Fed’s desired target rate of 2%. By the way, considerably low oil prices have reduced fuel bills and have raised inflation adjusted take home pay.

Why Does Consumer Confidence Matter?

Consumer confidence number is a key reading as it has been, historically, good at predicting consumer spending for the next three to six months. 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.

These numbers influence companies’ production schedule, particularly big-ticket items like cars, appliances, etc. In fact, the consumer discretionary sector is mostly affected as spending plays a major role in determining revenues. Automobile stocks often track these numbers and so do appliance manufacturers, retailers, consumer discretionary manufacturers, big-ticket entertainment providers, jewelry retailers and cruise line operators, to name a few.

5 Stocks to Buy as Consumers Gain Confidence

Since the aforementioned sector is positioned to benefit from this stellar reading on confidence level, picking stocks from the same will be a smart move. We have, thus, selected five consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such 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.

Rocky Brands, Inc. RCKY designs, manufactures, and markets footwear and apparel under the Rocky, Georgia Boot, Durango, Lehigh, and Michelin brand names. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 3% over the past 60 days. The company’s expected earnings growth rate for the current year is 9.6%, higher than the Shoes and Retail Apparel industry’s projected rally of 5.8%.

SeaWorld Entertainment, Inc. SEAS operates as a theme park and entertainment company. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has risen 1.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 188.5%, way more than the Leisure and Recreation Services industry’s estimated rise of 4.2%.

BJ's Wholesale Club Holdings, Inc. BJ operates as a warehouse club on the East Coast of the United States. The company has a Zacks Rank #1 and a VGM Score of B. 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 year is 12.8%, more than the Consumer Services - Miscellaneous industry’s projected rally of 10.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Marine Products Corporation MPX designs, manufactures, and sells recreational fiberglass powerboats for the sportboat, deckboat, cruiser, jet boat, and sport fishing markets. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has climbed 7.4% over the past 60 days. The company, which is part of the Leisure and Recreation Products industry, is expected to see earnings growth of 21.4% in the next quarter.

Rent-A-Center, Inc. RCII leases household durable goods to customers on a rent-to-own basis. The company also provides merchandise on an installment sales basis. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has moved nearly 11% north over the past 90 days. The company’s expected earnings growth rate for the current year is 100%, way more than the Consumer Services - Miscellaneous industry’s expected rally of 10.5%.

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