Wall Street is set to close this week on a high note after a disappointing last week. Market's fabulous V-shaped recovery for nearly the last three months helped it to exit the coronavirus-induced short bear territory. The new bull market has maintained strong momentum barring some fluctuations such as concerns about a second wave of COVID-19 infections.
Meanwhile, the consumer discretionary sector, which suffered a severe setback due to coronavirus and the imposition of lockdowns to prevent it, registered astonishing growth once the economy bottomed out.
Importance of Surging Consumer Discretionary Stocks
The consumer discretionary sector comprises businesses that sell goods and services, which are considered non-essential by consumers. These are the products that consumers can avoid without any major consequences to their well-being. In fact, these goods are desirable only if the available income of an individual is sufficient to purchase them. This is in sharp contrast to consumer staples products that are absolutely necessary.
Notably, the U.S. economy was performing well buoyed by strong consumer spending before the advent of coronavirus. However, the lockdowns imposed by the United Sates and across the world along with the breakdown of the global supply chain system, significantly dented both consumer and business confidence.
Notably, the Consumer Discretionary Select Sector SPDR (XLY), one of the 11 broad sectors of the S&P 500 Index, has rallied 46.8% in the past three months, second only to the Energy Select Sector SPDR (XLE), which has jumped 67.6%. The benchmark itself is up only 29.9%. year to date and consumer discretionary is one of only three sectors of the S&P 500 that are in positive territory.
Momentum Likely to Continue
Despite the resurgence of the deadly coronavorus in various states, it is unlikely that a second round of lockdown will be imposed. All 50 states have eased lockdown restrictions and opened up their economies in some form since the last week of May.
On Jun 11, Treasury Secretary Steven Mnuchin said that a second round of lockdown is not a viable option as it will create more damage than combating coronavirus. On Jun 14, White House economic adviser Larry Kudlow said the economy “has got to open.” He argued that the recent surge in coronavirus cases is nothing to do with reopening but due to an increase in the number of testing.
Better-than-expected data, despite the fact that the aggregate economy is still way below its pre-lockdown level of activities, have shown fundamental stability of the U.S. economy. Impressive job additions, a jump in retail sales and a quickly recovering housing market clearly indicate that consumer spending, which constitutes nearly 68% of the U.S. economy is gaining momentum. Moreover, the sagging U.S. manufacturing sector, which generates around 12% of the GDP, is slowly returning to its own track.
Our Top Picks
We have narrowed down our search to five consumer discretionary stocks with strong growth potential and robust earnings estimate revisions that have popped more than 15% in the past month. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past month.
BJ's Wholesale Club Holdings Inc. BJ is an operator of membership warehouse clubs primarily in East United States. It operates clubs and BJ's Gas locations in several states. The Zacks Rank #1 company has an expected earnings growth rate of 51.4% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved 27.7% over the last 30 days. The stock price has advanced 19.2% in the past month.
Smith & Wesson Brands Inc. SWBI designs, manufactures and sells firearms. It offers pistols, revolvers, rifles, handcuffs and other related products and accessories. The Zacks Rank #1 company has an expected earnings growth rate of 143.2% for the current year (ending April 2021). The Zacks Consensus Estimate for current-year earnings has improved 108.2% over the last 30 days. The stock price has soared 84.4% in the past month.
OneWater Marine Inc. ONEW operates as a recreational boat retailer in the United States. It offers new and pre-owned recreational boats and yachts, as well as related marine products, such as parts and accessories. The Zacks Rank #2 company has an expected earnings growth rate of 71.7% for next year (ending August 2021). The Zacks Consensus Estimate for next-year earnings has improved 10.4% over the last 30 days. The stock price has jumped 57% in the past month.
Camping World Holdings Inc. CWH operates as an outdoor and camping retailer. It operates through three segments: Consumer Services and Plans, Dealership and Retail. The Zacks Rank #2 company has an expected earnings growth rate of 193.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.3% over the last 30 days. The stock price has climbed 36.4% in the past month.
Sirius XM Holdings Inc. SIRI provides satellite radio services on a subscription fee basis in the United States. It offers commercial-free music, premier sports and live events, news and comedy and exclusive talk and entertainment shows. The Zacks Rank #2 company has an expected earnings growth rate of 15% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4% over the last 30 days. The stock price has gained 15.9% in the past month.
5 Stocks to Soar Past the Pandemic: In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.
See the 5 high-tech stocks now>>
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
BJs Wholesale Club Holdings, Inc. (BJ) : Free Stock Analysis Report
Sirius XM Holdings Inc. (SIRI) : Free Stock Analysis Report
Camping World Holdings Inc. (CWH) : Free Stock Analysis Report
OneWater Marine Inc. (ONEW) : Free Stock Analysis Report
American Outdoor Brands Corporation (SWBI) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research