Despite worries over higher gas prices and interest rates that are creeping higher, the U.S. consumer is forging ahead. Consumer spending levels continue to increase, while confidence remains rather high as well.
While there are likely a number of trends that are behind the strong consumer, you have to believe that recent bullishness in both the jobs and housing markets are helping immensely. New claims continue to drop, while housing prices are on pace for double digit (year-over-year) percentage gains too. Add this in to a stock market at record highs, and you have a recipe for a strong consumer that could still have room to run higher.
Given this, it might be a good idea to cycle towards consumer stocks at the tail end of this earnings season. These stocks remain well positioned in today’s market environment, and could see solid guidance as a result of the aforementioned trends.
How to choose?
Obviously, there are quite a few companies in the consumer space, so it may be difficult to pick the right stock for your portfolio. One way to narrow down the list of choices is by looking at stocks that have a solid Zacks Rank, and a favorable Zacks Earnings ESP (see Zacks Earnings ESP: A Better Way to Find Earnings Surprises).
This combination is usually a harbinger of an earnings beat, so looking for this arrangement can be a formula for success in this sluggish time of the market. For investors seeking to apply this strategy to their portfolios, we have highlighted three consumer stocks below which fit these criteria, and thus may be big winners this earnings season:
Conn’s is a specialty retailer that currently focuses in on Texas and Louisiana. The focus of the business is on large appliances like freezers, washers, and refrigerators, while the company also sells consumer electronics and home office equipment as well.
The firm is currently expecting superb earnings growth with full year earnings growth expected to be above 60%. Analysts have been moving their estimates higher for the firm lately too, suggesting that good things could be ahead, even with these lofty estimates.
CONN currently has a Zacks Rank #2 (Buy) along with a 5.1% ESP. The firm is expected to report earnings on September 4th.
GameStop is a Texas-based video game retailer, selling a variety of new and pre-owned video game software and hardware. The firm has over 6,600 stores, and it has international exposure as well, operating in 15 nations around the globe.
Although there is some concern over growth rates, estimates have largely been moving higher as of late, especially for full year and then 2014 metrics. The most accurate—in other words most recent estimates—have been moving higher, and with GME’s solid history at earnings season, the company could be well-positioned this time around too.
GME has a Zacks Rank of 3 (Hold), while it has an enormous ESP of 50%. The company looks to report earnings on August 22nd.
Arguably one of the most famous electronics retailers, Best Buy has made a name for itself selling a variety of electronics under one roof. The huge chain went through a very difficult period recently, thanks to worries over competition, but there is some hope that the company is on the right track now.
After all, shares of BBY have added over 50% in the trailing one year time frame, and estimates have been trending higher for the current year and next year periods. The firm has also shown a solid track record at earnings season, while the most recent estimate suggests that we could see another beat this quarter from the embattled firm.
Best Buy has a Zacks Rank of 2 (Buy), while it has an ESP of 16.7%. The firm reports earnings on the 20th of August.
Thanks to the positive trends underpinning the consumer recovery—such as a solid jobs market and price appreciation in housing—it becomes pretty clear that the consumer sector is the place to be. Given this, a look to the space for some possible outperformers could be a great idea to finish off earnings season.
One way to do this is by looking at stocks that have a solid Zacks Rank, and a positive Zacks Earnings ESP. Companies that meet both of these criteria, such as the three outlined above, could be well positioned to beat this earnings season, and give investors solid gains to close out the summer.
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