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Solid Consumer Confidence Confirms Economic Recovery: 6 Picks

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Wall Street has been witnessing a solid run over the past 11 months. However, a section of economists and financial experts remain skeptical about whether Wall Street's rally corresponds to the Main Street's recovery.

Barring labor market, several economic data released this year reflected that the U.S. economic recovery regained pace this year, after it slowed down in the last quarter of 2020. The latest example was the consumer confidence data of February.

Solid Consumer Confidence in February

On Feb 23, the Conference Board reported that Consumer Confidence Index rose to a three-month high of 91.3 in February from a revised 88.9 in January. The consensus estimate was 88.8. Present Situation Index climbed sequentially to 92 from 85.5 while Expectations Index fell marginally sequentially to 90.8 from 91.2.

The consumers who claimed business conditions are good increased to 16.5% from 15.8% sequentially while consumers who claimed business conditions are bad decreased to 39.9% from 42.4% sequentially. Likewise, consumers who claimed availability of enough jobs rose 21.9% from 20% sequentially while consumers who claimed jobs are hard to get declined to 21.2% from 22.5%.

Near-Term Drivers

The primary reason for growing consumer confidence in the first two months of 2021 was the Congressional approval of the $900 billion second round of fiscal stimulus in December 2020. On Jan 14, President Joe Biden proposed a new $1.9 trillion stimulus package. The proposed plan will increase direct payments to $2,000 from existing $600 and supplemental unemployment benefits of $400 per week through September. Minimum wage rate will be hiked to $15 per hour.

On Feb 23, in his semi-annual testimony on the economy before the Senate Banking Committee, the Fed Chairman reiterated the central bank's stand to pursue easy monetary policies as inflation is far below the Fed's target level and labor market has a long way to go before it reaches the pre-pandemic level.

The U.S. government has ramped up nationwide deployment of COVID-19 vaccines. Moreover, the new cases of coronavirus infections and hospitalization declined significantly this month. The combined effect of these two factors will lead to gradual reopening of the U.S. economy, which has been operating at sub-optimal level since lockdowns were imposed last year.

Reopening of the U.S. economy along with massive fiscal and monetary stimulus will strengthen the confidence of Americans in the economy, prompting them to spend higher. Notably, consumer spending is the largest component of U.S. GDP.

Arguments for Selecting Consumer Discretionary Stocks

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. The consumer discretionary sector is likely to be a major gainer as the U.S. economy gradually returns to the pre-pandemic level as more parts of it reopen.

Our Top Picks

We have narrowed down our search to six consumer discretionary stocks that have surged more than 15% year to date and still have strong upside potential for the rest of 2021. All these stocks have witnessed robust earnings estimate revisions in the past seven to 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our six picks year to date.

 

Sleep Number Corp. (SNBR - Free Report) provides sleep solutions and services in the United States. It designs, manufactures, markets, retails and services beds, pillows, sheets, and other bedding products under the Sleep Number name.

This Zacks Rank #1 company has an expected earnings growth rate of 24.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 32.6% over the past seven days. The stock price has soared 56.4% year to date.

Malibu Boats Inc. (MBUU - Free Report) operates as a designer, manufacturer and marketer of sport boats primarily in the United States. This Zacks Rank #1 company has an expected earnings growth rate of 69.3% for the current year (ending June 2021). The Zacks Consensus Estimate for the current year has improved 11.2% over the past 30 days. The stock price has jumped 29.5% year to date.

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.

This Zacks Rank #1 company has an expected earnings growth rate of 25.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the past 30 days. The stock price has climbed 27.5% year to date.

Mohawk Industries Inc. (MHK - Free Report) designs, manufactures, sources, distributes, and markets flooring products for remodeling and construction 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.

This Zacks Rank #2 company has an expected earnings growth rate of 35.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.6% over the past seven days. The stock price has rallied 26.1% year to date.

Adtalem Global Education Inc. (ATGE - Free Report) provides a wide array of educational services across medical and healthcare, financial services and business and law worldwide. It operates through two segments, Medical and Healthcare and Financial Services.

This Zacks Rank #2 company has an expected earnings growth rate of 30.7% for the current year (ending June 2021). The Zacks Consensus Estimate for current-year earnings has improved 2.1% over the past 30 days. The stock price has appreciated 19.8% year to date.

Brunswick Corp. (BC - Free Report) designs, manufactures and markets recreation products worldwide. It primarily offers marine engine products. This Zacks Rank #2 company has an expected earnings growth rate of 25.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.1% over the past 30 days. The stock price has advanced 18.7% year to date.

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