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4 Reasons Why Consumer Discretionary Stocks Are a Buy Now

The U.S. consumer discretionary sector has been currently experiencing possibilities of perils. Over the last 30 days, the sector behemoth Consumer Discretionary Select Sector SPDR ETF XLY added 5.5%, while the past year has seen a more positive trend, with the fund gaining about 17%. This overall uptrend is reflected in the year-to-date figure, too, which stands at 29%.

Although higher unemployment, eroding consumer savings and pressure on home prices are likely to weigh on consumer spending growth, a few favorable factors have lately shown light at the end of the tunnel.

Against this backdrop, below we highlight a few reasons that may boost these consumer discretionary stocks ahead. The winning stocks include: AMC Entertainment AMC, Royal Caribbean Cruises RCL, DraftKings DKNG, fuboTV FUBO and The Honest Company HNST.

Falling Inflation

The Consumer Price Index (CPI) showed that prices remained unchanged over the last month and grew 3.2% from the prior year in October, marking a deceleration from September's 0.4% monthly increase and 3.7% annual gain in prices. Core inflation marked its slowest pace in over two years.

Economists' expectations fell short of the actual data, as they had predicted a 0.1% month-over-month increase and a 3.3% year-over-year increase in prices. Core prices were also anticipated to rise by 0.3% from the prior month and 4.1% from the previous year.

A Less-Hawkish Fed

Cooling inflation triggered the possibility of a less hawkish Fed going forward. Following the release of this data, market indicators showed a nearly 95% probability that the Federal Reserve would keep interest rates unchanged in December, as reflected in data from the CME Group.

U.S. benchmark treasury yield slumped to 4.45% on Nov 16, 2023, from 4.63% recorded on Nov 13, while the two-year Treasury notes yielded 4.83% on Nov 16, 2023, down from 5.02% recorded on Nov 13.

Holiday Season Sales

The National Retail Federation (NRF) stated that consumers are estimated to shell out between $957.3 billion to $966.6 billion during November and December. Thus, spending will increase between 3% and 4% over the same period last year. The growth may be slightly lower compared to recent years, but it’s still in line with the growth rate from 2010 to 2019, when the average annual holiday outlays jumped 3.6%.

Decent Earnings

The consumer discretionary sector is expected to record 26.3% earnings growth in the third quarter, while earnings growth for the final quarter of 2023 is likely to be 18.1%. For the first and second quarters of 2024, the earnings growth is expected to be 14.1% and 14.7%, respectively, per the Earnings Trends issued on Nov 15, 2023. The revenue growth for Q3 is expected to be 8.3%. For Q4 of 2023, Q1 of 2024 and Q2 of 2024, revenue growth will likely be 3.7%, 3.5% and 3.6%, respectively.

Top Picks

Against this backdrop, below we highlight a few consumer discretionary stocks that have an upbeat (Value-Growth-Momentum) scoreof “B” and a Zacks Rank #2 (Buy) and Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for their earnings in the upcoming fiscal year has grown by at least 5% in the past month.You can see the complete list of today’s Zacks #1 Rank stocks here.

AMC Entertainment

AMC Entertainment Holdings, Inc., operates as a theatrical exhibition company primarily in the United States and internationally.

Zacks Rank: #2

Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 29.83%

Royal Caribbean Cruises

Royal Caribbean Cruises is a cruise company. It owns and operates three global brands — Royal Caribbean International, Celebrity Cruises and Azamara Club Cruises.

Zacks Rank: #1

Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 7.76%

DraftKings

DraftKings Inc. is a digital sports entertainment and gaming company created to fuel the competitive spirit of sports fans with products that range across daily fantasy, regulated gaming and digital media.

Zacks Rank: #2

Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 34.81%

fuboTV

FuboTV offers sports first live TV streaming platform as well as news and entertainment content.

Zacks Rank: #2

Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 8.33%

The Honest Company

The Honest Company is a digitally-native, mission-driven brand focused on leading the clean lifestyle movement, creating a community for conscious consumers and seeking to disrupt multiple consumer product categories.

Zacks Rank: #2

Percentage change F1 Zacks Consensus Earnings Estimate (4 weeks): 27.27%

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

AMC Entertainment Holdings, Inc. (AMC) : Free Stock Analysis Report

Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports

DraftKings Inc. (DKNG) : Free Stock Analysis Report

fuboTV Inc. (FUBO) : Free Stock Analysis Report

The Honest Company, Inc. (HNST) : Free Stock Analysis Report

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Zacks Investment Research