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7 Consumer Discretionary Stocks to Buy Ahead of Q3 Earnings

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Third-quarter 2020 earnings are in full swing and market participants are watching the results closely as the second quarter was a mixed one both in terms of economic data and stock market performance.

Corporate's profits in the third quarter and their guidance will be thoroughly scrutinized by financial experts and economists to gauge whether the U.S. economy will witness a V-shaped recovery this year from the coronavirus-led devastations.

Meanwhile, seven consumer discretionary stocks with a favorable Zacks Rank are set to beat on third-quarter earnings this week. Investment in these stocks may be fruitful as an earnings beat is expected to drive their stock prices in the near future.

Consumer Discretionary Sector in Q3

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.

The consumer discretionary sector turned out the largest gainer in stock markets last quarter with several stocks skyrocketing. Since the lockdowns in March, the U.S. economy is operating at a sub-optimal level. However, as large parts of the U.S. economy came out of pandemic-led lockdowns, consumer discretionary sector gained.

Q3 Earnings Results So Far

The third-quarter earnings season has started on a positive note although overall earnings are likely to remain negative this quarter. As of Oct 23, 135 S&P 500 companies have reported results. Total earnings of these companies are down 15.5% from the same period last year on 5.2% lower revenues, with 85.2% beating EPS estimates and 79.3% surpassing revenue estimates.

Meanwhile, for the quarter as a whole, total S&P 500 earnings are expected to decline 17.3% on 2.2% lower revenues. This would mean an improvement over an earnings decline of 22% year over year on 2.9% lower revenues, as projected before the reporting cycle.  

This also implies a marked improvement over second-quarter earnings that plunged 32.3% on 9.2% lower revenues. Notably, the first-quarter earnings of companies on the S&P 500 Index were down 13.5% on 1.4% higher revenues. (Read More: Previewing Big Tech Earnings)

Our Top Picks

We have narrowed down our search to seven consumer discretionary stocks that are slated to release third-quarter earnings results this week. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with the combination of a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are anticipated to appreciate after earnings releases. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The chart below shows the price performance of our seven picks in the third quarter.

 

Crocs Inc. (CROX - Free Report) designs, develops, manufactures, markets, and distributes casual lifestyle footwear and accessories for men, women and children worldwide. It offers various footwear products, including clogs, sandals, flips and slides, shoes, and boots under the Crocs brand name. The Zacks Rank #1 company has an Earnings ESP of +2.56%.

The company has an expected earnings growth rate of 29.2% for the current year. The Zacks Consensus Estimate for the current year has improved 1% over the last 30 days. It has a trailing four-quarter earnings surprise of 191.8%, on average. The company is set to release earnings results on Oct 27, before the opening bell.

Red Rock Resorts Inc. (RRR - Free Report) is engaged in casino entertainment and gaming entertainment businesses in the United States. It operates through two segments, Las Vegas Operations and Native American Management. The company has an Earnings ESP of +130.77%. The Zacks Consensus Estimate of Red Rock Resorts for the current year has improved 3.7% over the last 7 days. The Zacks Rank #2 company  is set to release earnings results on Oct 27, after the closing bell.

Brunswick Corp. (BC - Free Report) designs, manufactures and markets recreation products worldwide. It primarily offers marine engine products. The Zacks Rank #2 company has an Earnings ESP of +1.94%. The Zacks Consensus Estimate for Brunswick's current-year earnings has improved 2.7% over the last 7 days. It has a trailing four-quarter earnings surprise of 39.9%, on average. The company is set to release earnings results on Oct 29, before the opening bell.

Kontoor Brands Inc. (KTB - Free Report) is a lifestyle apparel company that designs, manufactures, sources, markets, and distributes apparel under the Wrangler and Lee brands in the United States and internationally. The Zacks Rank #2 company has an Earnings ESP of +2.20%.

The Zacks Consensus Estimate for Kontoor Brands' current-year earnings has improved 1.4% over the last 30 days. It has a trailing four-quarter earnings surprise of 13%, on average. The company is set to release earnings results on Oct 29, before the opening bell.

Activision Blizzard Inc. (ATVI - Free Report) develops and distributes content and services on video game consoles, personal computers and mobile devices. It operates through three segments: Activision Publishing Inc., Blizzard Entertainment Inc., and King Digital Entertainment. The Zacks Rank #2 company has an Earnings ESP of +3.29%.

The company has an expected earnings growth rate of 44.9% for the current year. The Zacks Consensus Estimate for the current year has improved 0.3% over the last 30 days. It has a trailing four-quarter earnings surprise of 30.5%, on average. The company is set to release earnings results on Oct 29, after the closing bell.

Mohawk Industries Inc. (MHK - Free Report) designs, manufactures, sources, distributes, and markets flooring products for remodeling and new constructions of residential and commercial spaces in the United States, Europe, Russia, and internationally. It operates through three segments: Global Ceramic, Flooring North America and Flooring Rest of the World.

The Zacks Rank #1 company has an Earnings ESP of +6.33%. The Zacks Consensus Estimate of Mohawk Industries for the current year has improved 0.2% over the last 7 days. The company  is set to release earnings results on Oct 29, after the closing bell.

Funko Inc. (FNKO - Free Report) is a pop culture consumer products company, designs, sources and distributes licensed pop culture products in the United States, China, Vietnam and the United Kingdom. The company has an Earnings ESP of +6.06%. The Zacks Consensus Estimate of Funko for the current year has improved 100% over the last 30 days. The Zacks Rank #2 company  is set to release earnings results on Oct 29, after the closing bell.

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