U.S. consumers have been more optimistic in March regarding the next six to nine months than they were at the beginning of this year. Two recently released studies — University of Michigan's Consumer Sentiment Index and the Conference Board's Consumer Confidence Index — climbed in March.
The ramp up of nationwide deployment of COVID-19 vaccines, a strong recovery of the U.S. economy, injection of a massive $1.9 trillion coronavirus-aid package, muted inflation and President Joe Biden's plan to overhaul U.S. infrastructure and manufacturing are the primary reasons for a surge in consumers' optimism.
Consumers Are More Comfortable in March
On Mar 30, the Conference Board reported that Consumer Confidence in March jumped to a one-year high of 109.7 from the downwardly revised 90.4 in February.
The consensus estimate was 97. The Present Situation sub-index increased to 110 in March from 89.6 in the previous month. The sub-index for Expectations for the next six months rose to 109.6 from 90.9 in the prior month, marking the highest level in 21 months.
On Mar 26, the University of Michigan reported that the final Consumer Sentiment Index in March climbed to a one-year high of 84.9 from a reading of 76.8 in February. The consensus estimate was 83.8. Notably, the initial reading of March was 83.
The sub-index of Current Economic Situation increased to 93 in March from 86.2 in February. The sub-index of Economic Outlook for the next 12 months surged to a one-year high of 108 in March from 83 in February.
Drivers of Consumers' Optimism
First, on Mar 25, President Biden unveiled a new plan to inject 200 million Americans with COVID-19 vaccines within his first 100 days in office. The new target is the double of what his administration set earlier. Moreover, the three FDA approved vaccine manufacturers also ramped up production. This means faster-than-expected reopening of the U.S. economy.
Second, per the new $1.9 trillion coronavirus-aid package of the Biden administration, eligible U.S. citizens will receive a $1,400 check payment in addition to $1,400 for any dependent. Moreover, the extra amount in unemployment benefits of $300 a week will be available till Sep 6. The fresh stimulus significantly boosted consumer optimism.
Third, several research firms have estimated that U.S. citizens had a staggering $1.5 - $1.8 trillion in savings at the end of 2020. Strong pent-up demand and faster economic recovery are likely to increase inflation. However, the Fed said that such inflation will be transitory in nature.
In February, the core (excluding the volatile food and energy component) personal consumption expenditure (PCE) price index increased 1.4% year over year compared with 1.5% in January. This is well below Fed's target rate of 2%. The central bank recently confirmed to pursue its easy monetary policy stance since 2023 and announced that banks could resume share buybacks and raise dividends starting at the end of June.
Fourth, on Mar 31, President Biden is set to announce details of his administration's new decision to renovate U.S. infrastructure and manufacturing. According to some estimate, this project may result in $3 trillion in government spending, much larger than the $1.9 trillion COVID-19 relief package.
These positives compelled investors to shift funds from safe-haven bonds to risky equities. Consequently, the yield of the benchmark 10-Year U.S. Treasury Note soared to a 14-month high at 1.776% on Mar 30.
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 five consumer discretionary stocks that have surged more than 20% 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 last 30 to 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here
The chart below shows the price performance of our five picks year to date.
Sleep Number Corp. ( SNBR Quick Quote 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.
The company has an expected earnings growth rate of 24.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 38% over the last 60 days. The stock price has soared 78.5% year to date.
Rent-A-Center Inc. ( RCII Quick Quote RCII - Free Report) is the largest rent-to-own operator in the United States, offering durable goods such as consumer electronics, appliances, computers, furniture and accessories. It operates through four segments: Core U.S., Acceptance Now, Mexico, and Franchising.
The company has an expected earnings growth rate of 50.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 4.1% over the last 30 days. The stock price has rallied 51.7% year to date.
Camping World Holdings Inc. ( CWH Quick Quote CWH - Free Report) is a provider of services, protection plans, products and resources for recreational vehicle enthusiasts. It operates through three segments: Consumer Services and Plans, Dealership and Retail.
The company has an expected earnings growth rate of 20.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 16.1% over the last 30 days. The stock price has appreciated 41.2% year to date.
G-III Apparel Group Ltd. ( GIII Quick Quote GIII - Free Report) is a manufacturer, designer and distributor of apparel and accessories under licensed brands, owned brands and private label brands. It designs, sources and markets women's and men's apparel in the United States and internationally.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved by 8.5% over the last 30 days. The stock price has advanced 26% year to date.
Crocs Inc. ( CROX Quick Quote 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 company has an expected earnings growth rate of 20.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.1% over the last 60 days. The stock price has surged 23.9% year to date.
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