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U.S. Consumer Sentiment at 3-Month High: 5 Top-Ranked Picks

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On Jun 15, the University of Michigan reported an increase in U.S. consumer sentiment gauge for June. Notably, the increase was its highest in three months. This reflects that American households are shrugging of volatility concerns in financial markets.

Per the survey report, U.S. consumers are content with current financial scenario and current buying conditions for durable goods. An extremely robust labor market has created greater certainty about future personal income. This will fuel higher consumer spending going forward. Notably, consumer spending constitutes more than 70% of the U.S. economy. At this stage, investment in consumer discretionary stocks with favorable Zacks Rank is likely to be a prudent move.

Strong June Data   

The preliminary reading of the University of Michigan’s consumer sentiment index for June was 99.3 compared with 98 in May.  June reading was also above the consensus estimate of 98.4 and the highest since March’s reading of 101.4.

Current conditions index, which measures Americans’ perception of their finances, grew to 117.9 in June from 111.8 in May. June reading was the second-highest reading since 2000. Household income is anticipated to grow at an annual rate of 2.5% in June from 1.6% in May. June’s reading of household income was the highest since 2008. Consumers expect the inflation rate in the next year to stay at 2.9%, highest since March 2015 owing to trade and tariff conflicts.

Healthy Retail Sales Data

On Jun 14, the Commerce Department reported that the U.S. retail sales rose 0.8% in May, its biggest rise since November 2017. The consensus estimate was for an increase of 0.4%. Retail sales are up for three straight months and also advanced 5.9% year over year.  Meanwhile, retail sales data for April was revised up to 0.4% instead of the previously reported gain of 0.2%.

Robust Labor Market

On Jun 14, the Labor Department reported that applications for U.S. unemployment benefits dropped 4,000 to a seasonally adjusted 218,000 for the week ended Jun 9. Initial claims declined to a near 44½-year low reflecting growing tightness of the U.S. labor market. The U.S. economy added 223,000 jobs in May, exceeding the consensus estimate of 190,000. The unemployment rate declined from 3.9% in April to 3.8% in May, its lowest in 18 years.

How to Identify the Potential Winners?

Strong consumer sentiment data indicates that the momentum of the U.S. economy will continue in the coming months. Consequently, adding consumer discretionary stocks to your portfolio makes sense at this point. However, picking winning stocks can be a difficult task.

This is where our VGM Score comes in handy. 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 the 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 of either A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks in the last thre months.

 

Rocky Brands Inc. (RCKY - Free Report) is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under brand names Rocky Outdoor Gear, Georgia Boot, Durango, Lehigh, and the licensed brand, Dickies.

Rocky Brands has a VGM Score of A. It has expected earnings growth of 29.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.1% over the last 60 days.

Delta Apparel Inc. (DLA - Free Report) is a vertical manufacturer of knitwear products for the entire family. The products it manufactures are sold under brands of Delta Pro-Weight, Delta Magnum Weight, Healthknit and Quail Hollow Sportswear.

Delta Apparel has a VGM Score of A. It has expected earnings growth of 12.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 11.1% over the last 60 days.

Malibu Boats Inc. (MBUU - Free Report) operates as a designer, manufacturer and marketer of sport boats primarily in the United States. The company sells its boats under two brands: Malibu and Axis Wake Research.

Malibu Boats has a VGM Score of B. It has expected earnings growth of 56.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.4% over the last 60 days.

Urban Outfitters Inc. (URBN - Free Report) is an innovative specialty retailer and wholesaler offering a variety of lifestyle merchandise to highly defined customer niches through Urban Retail stores in the United States, Canada, and Europe.

Urban Outfitters has a VGM Score of B. It has expected earnings growth of 49.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.2% over the last 60 days.

Shoe Carnival Inc. (SCVL - Free Report) is one of the largest family footwear retailers in the United States, offering a broad assortment of moderately priced dress, casual and athletic footwear for men, women and children.

Shoe Carnival has a VGM Score of B. It has expected earnings growth of 36.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.7% over the last 60 days.

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