Individuals ramp up purchases of things like candies, chocolates, cologne, greeting cards along with flowers and other such gifts to pamper their loved ones on Valentine’s Day. Demand for dining out also sees an uptick.
This Valentine’s Day won’t be any different. The demand for such discretionary items is likely to shoot up, largely facilitated by record wage growth and higher confidence on household income.
Given the positive trends, it will be prudent to bet on fundamentally-sound companies that could make the most of Valentine’s Day.
Americans to Spend Billions This Valentine’s
As per the recent annual survey by the National Retail Federation and Prosper Insights and Analytics, U.S. consumers are expected to spend a total of $19.6 billion on discretionary items this V-Day, up from $18.2 billion last year. This number will be the second-highest in the survey’s 15-year history, topped only by $19.7 billion witnessed in 2016.
On average, consumers will spend $143.56, up from last year’s $136.57, as nearly 55% of the population celebrates the day. In fact, the survey shows that this year, consumers will spend an average $88.98 on spouses ($21.1 billion), $25.29 on children or parents ($3.5 billion), $7.26 on children’s classmates or teachers ($991 million), $7.19 on friends ($982 million), $4.79 on co-workers ($654 million) and $5.50 on pets ($751 million). Largely, consumers who are in the age group of 25 to 34 will be the biggest spenders, averaging $202.76.
Nearly $4.7 billion will be spent on jewelry (19%), $1.9 billion on clothing (17%), $1.5 billion on gift cards/gift certificates (15%) and $2 billion on flowers (10%). But, most of the spending will come from eating out, around $3.7 billion (35%), while candy purchases will be up 55% from last year to a total of $1.8 billion. In the meantime, tickets to concerts or sporting events, better known as ‘gifts of experience’, continues to be in demand.
And when it comes to shopping venues, much of it remains same as last year. Consumers planning to shop at department stores, discount stores, online, specialty stores, florists and local small business will be around 35%, 32%, 29%, 19%, 17% and 14%, respectively.
Consumer Discretionary Spending on the Rise
Americans are set to splurge on discretionary items this Valentine’s Day, courtesy of fatter paychecks. Wages are growing at the quickest pace since the end of the last decade, which plays a significant role in driving consumer discretionary spending.
Average hourly wages increased 9 cents, or 0.3%, to $26.74 in January. This helped the average year-on-year hourly earnings to rise to 2.9%, the highest since June 2009. Wages grew on a tighter labor market; tax cut policy and a rise in the minimum wage threshold in several states. Minimum wage has been raised in 18 states in January, which had a positive impact on 4.5 million workers, per the Economic Policy Institute (read more: Wages See Fastest Growth Since 2009: Top 5 Gainers).
Moreover, consumer confidence was stronger than expected in January and hovered near a 17-year high, according to the Conference Board. More the confidence households generate, the higher will be the amount they spend.
5 Stocks to Gain From Valentine’s Day
Consumers are expected to spend near record levels this Valentine’s Day. Thus, investing in stocks that could make the most of the spending spree seems judicious. We have selected four such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Berkshire Hathaway Inc. BRK-B may be a property and casualty insurance and reinsurance company, but, candies and chocolates are one of its oldest holdings. In fact, the company has a 27% stake in The Kraft Heinz Company (KHC - Free Report) , which is known for manufacturing Cadbury. Needless to say, Warren Buffet bought the California boxed-candy business way back in 1972, long before Berkshire Hathaway became a household name for serious investors.
The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 4.4% in the last 90 days. Berkshire Hathaway is expected to give a positive return of 22.9% next quarter. The company has outperformed its industry in the last one-year period (+18.6% vs +14.7%).
You may not relate package delivery company, United Parcel Service, Inc. (UPS - Free Report) with Valentine’s Day, but UPS will deliver more than 88 million flowers on the day. The company is expected to trim freshly-cut flowers from Latin America to Miami International and then distribute them to major cities across the United States.
The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 12.5% in the last 90 days. United Parcel Service, which is part of the Transportation - Air Freight and Cargo industry, is expected to give a solid return of 16.7% and almost 21% in the current quarter and year, respectively.
Michael Kors Holdings Limited (KORS - Free Report) designs, markets, distributes, and retails branded women's apparel and accessories, and men's apparel. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 11.7% in the last 90 days. Michael Kors is expected to give a stable return of 10% and 3.5% in the next quarter and current year, respectively. The company has outperformed its industry in the past year (+64% vs +24.8%). You can see the complete list of today’s Zacks #1 Rank stocks here.
G-III Apparel Group, Ltd. (GIII - Free Report) — a Zacks Rank #1 company — designs, manufactures, and markets men's and women's apparel. The Zacks Consensus Estimate for its current-year earnings rose 11% in the last 90 days. G-III Apparel is expected to give an astounding return of 200% and 88.9% in the current and next quarter, respectively. The stock has outperformed its industry in the last one-year period (+37.9% vs +24.7%).
Darden Restaurants, Inc. (DRI - Free Report) owns and operates full-service restaurants in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 7.4% in the last 90 days. Darden Restaurants is expected to yield a solid return of 24.2% and 18.4% in the current quarter and year, respectively. The company has outperformed its industry in the past year (+25.1% vs +9.5%).
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