4 Stocks to Buy as Consumer Confidence Makes a Solid Rebound

U.S. consumers seem optimistic for the first time in months. In spite of rising costs and imminent rate hikes, Americans seem to be growing more optimistic. The surprise jump in confidence may have been prompted by declining gasoline prices and signs of peaking inflation as prices in July remained unchanged from June.

Also, job gains have been on the rise and personal income is increasing, boosting the confidence of the concerned Americans. Given this situation, it would be ideal to invest in consumer discretionary stocks like On Holding AG ONON, Target Hospitality Corp. TH, RCI Hospitality Holdings, Inc. RICK and Marriott International, Inc. MAR, which are likely to benefit in the near term.

Consumer Confidence Rebounds

The Conference Board said on Aug 30 that the consumer confidence index jumped to 103.2 in August, nearly eight points from a downwardly revised 95.3 in July and higher than economists’ expectations of a reading of 98. August’s jump follows three straight months of decline.

Also, the Expectations Index, or the measure of expectations, which reflects consumers’ six-month outlook for income, business, and labor market conditions, increased significantly to 75.1 in August from 65.6 in July.

Consumer confidence had hit a low this year as sky-high commodity prices made people spend cautiously. Inflation hit a 41-year high and made the Fed aggressively hike interest rates. The Fed has already hiked rates by 225 basis points so far this year, and more hikes are on the way.

Amid all these, people have been worrying that steeper rate hikes will further slow economic growth. These concerns have dented people’s confidence. However, things seem to be changing finally and the surprise jump in August is an indication that people have got the feeling that inflation is showing signs of peaking as prices remained unchanged in July.

Optimistic Outlook

The Conference Board also said that the survey showed more optimism surrounding business conditions in the coming six months. Lynn Franco, senior director of economic indicators at the Conference Board, said that the survey showed more willingness to spend now and vacation plans at their highest level this year.

Also, more people are planning to buy homes and spend on cars and appliances. This is yet another indication that people are regaining confidence in the country’s economy.

Last week, Fed Chair Jerome Powell dashed all hopes of a less steep rate hike in its upcoming meeting in September. The rate hikes were already in the cards but people were divided between a 50-basis point and a 75-basis point rate hike. A 75-basis point rise now looks more likely.

Although the Fed will continue with its rate hike policy, people have got the feeling that inflation is easing, which has given them this confidence. Also, gasoline prices have declined substantially over the past month amid the ongoing geopolitical tensions, which is yet another indicator that the global economic and business conditions are easing.

Moreover, personal income and spending have been on the rise. According to the Department of Commerce, personal income rose 0.2% month over month in July, while personal spending grew 0.1%. This means that people now have more purchasing power and are also using it.

Given this situation, consumer discretionary seems to be an ideal space to invest in. The consumer discretionary sector is the only one to have been in the green in the past six months. The Consumer Discretionary Select Sector SPDR (XLY) has returned 2.5% in the past six months.

Our Choices

We have picked four stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) that are poised to benefit in the near term.

On Holding AG operates as a holding company. ONON, through its subsidiaries, provides footwear and sports apparel products that include ultralight and stretchable fabrics and accessories.

On Holding’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. ONON has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Target Hospitality Corp. is the holding company for Target Lodging, Signor Lodging and their respective subsidiaries. TH, through Target Lodging and Signor Lodging, builds, owns and operates customized housing communities for hospitality solutions, including culinary, catering, concierge, laundry and security services as well as recreational facilities. Target Hospitality primarily serves the oil and gas, energy and government sectors.

Target Hospitality’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. TH carries a Zacks Rank #2.

RCI Hospitality Holdings, Inc. owns and operates adult nightclubs that offer live adult entertainment, restaurant and bar services. RICK operates adult nightclubs under the name Rick's Cabaret, Club Onyx, XTC Cabaret, Tootsie's Cabaret, Cabaret North, Jaguars and Cabaret East. RCI Hospitality also owns and operates adult Internet Websites.

RCI Hospitality’s expected earnings growth rate for the current year is 26.2%. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the past 60 days. RICK hols a Zacks Rank #2.

Marriott International, Inc. is a leading worldwide hospitality company focused on lodging management and franchising, after the spin-off of its timeshare business into a publicly-traded company in November 2011. As of Aug 2, 2022, MAR operated, franchised and acted as a licensor of hotels as well as timeshare properties to more than 8,100 properties across 139 countries and territories under 30 brand names.

Marriott International’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 8.4% over the past 60 days. MAR has a Zacks Rank #2.

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