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Last Friday, markets moved lower following the release of disappointing data on GDP and durable orders. A larger-than-expected trade deficit was the primary reason for the slowdown in GDP growth. Meanwhile, durable orders also declined over the month of December, contrary to expectations of an increase.
However, the economic situation isn’t as gloomy as it seems, given that the GDP report also indicates that consumer spending continues to increase at a healthy pace. Moreover, an index of consumer sentiment hit a record level in December, which means this is a good time to pick up stocks benefiting from higher consumer expenditure.
Consumer Sentiment Hits 13-Year High
The University of Michigan Consumer Sentiment index increased from 98.2 in November to 98.5 for the month of December. This reading exceeded all expectations and is the highest observed since 2004. According to the report, 44% of those surveyed expect the economy to improve over 2017. Additionally, 33% of respondents think that the unemployment rate will continue to decline.
Much of the respondents' optimism was driven by a newly found confidence about their financial condition. Rising incomes and increasing household wealth have provided the brightest outlook for personal finances witnessed in a decade. An increase in the values of stocks and homes has also led 41% of those surveyed to think that the outlook for their personal finances has improved.
GDP Data Reflects Consumers’ Optimism
Meanwhile, fourth quarter data on GDP hit a discordant note, with the reported figure coming in well below expectations. According to the first estimate, GDP increased by 1.9%, lower than the consensus estimate of 2.2% growth. The below-par reading was primarily due to a 4.3% decline in exports, its largest contraction since the first quarter of 2015.
However, consumption expenditure, the primary engine of U.S. growth continued to rise. Consumer spending increased at a considerably high pace of 2.5%. There was particular enthusiasm around high value items such as new automobiles. A concurrent increase in business investment indicated that growth is likely to continue at a steady pace.
Our Choices
Despite the disappointing nature of the GDP and durable orders releases, data on consumer spending has provided a silver lining. Given that the new administration is likely to give a new fillip to the economy through its policies, consumption will continue to power growth.
Adding stocks benefiting from higher consumer spending makes for a smart choice at this point. However, picking winning stocks may be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
Gray Television, Inc. (GTN - Free Report) is an owner and operator of television stations and digital assets based in the U.S.
Gray Television has a VGM Score of A. Its earnings estimate for the current year has improved by 4.8% over the last 30 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 12.85, lower than the industry average of 13.92. The stock has returned 29.8% over the last three months, outperforming the Zacks Broadcast Radio and Television sector, which has returned 11.6% over the same period.
La-Z-Boy Inc. (LZB - Free Report) is a prominent manufacturer, marketer and retailer of furniture in the U.S. and abroad.
La-Z-Boy has a VGM Score of B. It has a P/E (F1) of 17.67, which is lower than the industry average of 17.85. The stock has returned 23.1% over the last three months, outperforming the Zacks Furniture Market sector, which has gained 8.8% over the same period.
Masonite International Corp. (DOOR - Free Report) is a designer and manufacturer of interior and exterior doors.
Masonite International has a VGM Score of B. The company has expected earnings growth of 16.6% for the current year. Its earnings estimate for the current year has improved by 0.6% over the last 30 days. The stock has returned 17.5% over the last three months, outperforming the Zacks Furniture sector, which has returned 8.8% over the same period.
Francesca's Holdings Corp. is a specialty retailer of women's apparel products.
Francesca's Holdings has gained 5.7% over the last three months, marginally underperforming the Zacks Shoes and Retail Apparel Market sector, which has gained 6% over the same period. However, it has a VGM Score of B. The company has expected earnings growth of 16.2% for the current year. Its earnings estimate for the current year has improved by 0.3% over the last 30 days. This provides a good opportunity to buy the stock which remains valued below its market potential at this point.
Belmond Ltd. is engaged in the hotels and travels businesses.
Belmond has gained 8.9% over the last three months, underperforming the Zacks Hotels and Motels Market sector, which has gained 10.3% over the same period. However, it has a VGM Score of B. The company has expected earnings growth of 3.3% for the current year. Its earnings estimate for the current year has improved by 3.3% over the last 30 days. This provides a good opportunity to buy the stock which remains valued below its market potential at this point.
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While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>
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5 Stocks to Buy on Record Consumer Sentiment
Last Friday, markets moved lower following the release of disappointing data on GDP and durable orders. A larger-than-expected trade deficit was the primary reason for the slowdown in GDP growth. Meanwhile, durable orders also declined over the month of December, contrary to expectations of an increase.
However, the economic situation isn’t as gloomy as it seems, given that the GDP report also indicates that consumer spending continues to increase at a healthy pace. Moreover, an index of consumer sentiment hit a record level in December, which means this is a good time to pick up stocks benefiting from higher consumer expenditure.
Consumer Sentiment Hits 13-Year High
The University of Michigan Consumer Sentiment index increased from 98.2 in November to 98.5 for the month of December. This reading exceeded all expectations and is the highest observed since 2004. According to the report, 44% of those surveyed expect the economy to improve over 2017. Additionally, 33% of respondents think that the unemployment rate will continue to decline.
Much of the respondents' optimism was driven by a newly found confidence about their financial condition. Rising incomes and increasing household wealth have provided the brightest outlook for personal finances witnessed in a decade. An increase in the values of stocks and homes has also led 41% of those surveyed to think that the outlook for their personal finances has improved.
GDP Data Reflects Consumers’ Optimism
Meanwhile, fourth quarter data on GDP hit a discordant note, with the reported figure coming in well below expectations. According to the first estimate, GDP increased by 1.9%, lower than the consensus estimate of 2.2% growth. The below-par reading was primarily due to a 4.3% decline in exports, its largest contraction since the first quarter of 2015.
However, consumption expenditure, the primary engine of U.S. growth continued to rise. Consumer spending increased at a considerably high pace of 2.5%. There was particular enthusiasm around high value items such as new automobiles. A concurrent increase in business investment indicated that growth is likely to continue at a steady pace.
Our Choices
Despite the disappointing nature of the GDP and durable orders releases, data on consumer spending has provided a silver lining. Given that the new administration is likely to give a new fillip to the economy through its policies, consumption will continue to power growth.
Adding stocks benefiting from higher consumer spending makes for a smart choice at this point. However, picking winning stocks may be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM score. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Gray Television, Inc. (GTN - Free Report) is an owner and operator of television stations and digital assets based in the U.S.
Gray Television has a VGM Score of A. Its earnings estimate for the current year has improved by 4.8% over the last 30 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 12.85, lower than the industry average of 13.92. The stock has returned 29.8% over the last three months, outperforming the Zacks Broadcast Radio and Television sector, which has returned 11.6% over the same period.
La-Z-Boy Inc. (LZB - Free Report) is a prominent manufacturer, marketer and retailer of furniture in the U.S. and abroad.
La-Z-Boy has a VGM Score of B. It has a P/E (F1) of 17.67, which is lower than the industry average of 17.85. The stock has returned 23.1% over the last three months, outperforming the Zacks Furniture Market sector, which has gained 8.8% over the same period.
Masonite International Corp. (DOOR - Free Report) is a designer and manufacturer of interior and exterior doors.
Masonite International has a VGM Score of B. The company has expected earnings growth of 16.6% for the current year. Its earnings estimate for the current year has improved by 0.6% over the last 30 days. The stock has returned 17.5% over the last three months, outperforming the Zacks Furniture sector, which has returned 8.8% over the same period.
Francesca's Holdings Corp. is a specialty retailer of women's apparel products.
Francesca's Holdings has gained 5.7% over the last three months, marginally underperforming the Zacks Shoes and Retail Apparel Market sector, which has gained 6% over the same period. However, it has a VGM Score of B. The company has expected earnings growth of 16.2% for the current year. Its earnings estimate for the current year has improved by 0.3% over the last 30 days. This provides a good opportunity to buy the stock which remains valued below its market potential at this point.
Belmond Ltd. is engaged in the hotels and travels businesses.
Belmond has gained 8.9% over the last three months, underperforming the Zacks Hotels and Motels Market sector, which has gained 10.3% over the same period. However, it has a VGM Score of B. The company has expected earnings growth of 3.3% for the current year. Its earnings estimate for the current year has improved by 3.3% over the last 30 days. This provides a good opportunity to buy the stock which remains valued below its market potential at this point.
Now See Our Private Investment Ideas
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>