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4 Essential Goods Stocks to Tap the Rise in Consumer Spending

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U.S. consumer spending increased a solid 5.6% in June, thus helping regain some of the record plunge witnessed after the coronavirus outbreak in March. The surge in consumer spending came despite a plunge in average personal income.

This once again proves Americans’ faith in the economy even though the government estimated a day earlier that the country’s economy shrank at a dizzying 32.9% annual rate in the April-June quarter. Moreover, fears of a second wave started gripping people, which again made people start stockpiling on necessities thus giving their spending a boost.

Americans Spend More Despite Plunge in Income

The Commerce Department said on Jul 31 that consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 5.6% in June after a record 8.5% rise in May as more businesses reopened. Data also showed that the increase in consumer spending in June coincided with a 1.1% drop in personal incomes.

This follows an even bigger decline of 4.4% in incomes in May. However, in spite of increasing for two straight months, consumer spending was still down at a record annual rate of 34.6% in the April-June quarter due to the deep pullback in the first two months following the outbreak.

Consumers Showing Faith in Economy

The United States witnessed the worst decline in the second quarter since 1947. But people have not lost confidence in the economy’s strength and are willing to spend. Consumer confidence fell to a record low in the early months of the pandemic as travel froze up and shutdown orders forced many restaurants, bars, entertainment venues and other retailers to close. But life somewhat started going back to normal in June, with states lifting restrictions, and consumer spending improved.

We cannot, however, ignore the growing cases of coronavirus —following reopening — that has reignited fears in the minds of people. So, consumer spending is likely to be more on essential commodities in the days to come. Even though people are willing to spend on entertainment, travel or holidaying, there aren’t too many options given that fears of the virus are preventing states to fully get back to normal functioning.

Our Choices

The gradual easing of restrictions followed by the opening of the economy will boost spending which had hit rock bottom over the past few of months. However, spending still will remain restricted to essential consumer goods. Given this scenario this is the ideal time to invest in these essential goods stocks.

While the easing of restrictions should boost spending, purchases are more likely to be limited to essential consumer goods. Given this scenario, we have handpicked four essential goods stocks that promise growth in the near term.

Reynolds Consumer Products Inc. (REYN - Free Report) produces and sells branded and store-brand products, which include cooking products, waste and storage products, and tableware. The company's flagship products include Reynolds Wrap aluminum foil, Hefty bags, and Hefty party cups. 

The company’s expected earnings growth rate for the current year is 31%. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the past 30 days. Reynolds Consumer Productshas a Zacks Rank #2 (Buy).

Ollies Bargain Outlet Holdings, Inc. (OLLI - Free Report) is a value retailer of brand name merchandise at drastically reduced prices. The company offers products principally under Ollie’s, Ollie’s Bargain Outlet, Good Stuff Cheap, Ollie’s Army, Real Brands Real Cheap!, Real Brands! Real Bargains!, Sarasota Breeze, Steelton Tools, American Way and Commonwealth Classics.

The company’s expected earnings growth rate for the current year is 39.8%. The Zacks Consensus Estimate for current-year earnings has improved 22.3% over the past 60 days.  Reynolds Consumer Productshas a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. (MED - Free Report) produces, distributes and sells weight loss and other health-related products through websites, multi-level marketing, telemarketing, franchised weight loss clinics and medical professionals. 

The company’s expected earnings growth rate for next year is 19%. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the past 30 days.  Medifast carries a Zacks Rank #2.

Flowers Foods, Inc. (FLO - Free Report) produces packaged bakery foods in the United States. The company specializes in baked food products and produces a wide range of breads, buns, rolls, snack cakes and tortillas.

The company’s expected earnings growth rate for next year is 14.6%. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past 30 days.  Flower Foods holds a Zacks Rank #2.

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