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5 Top-Ranked Consumer Discretionary Stocks to Buy for Q4

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U.S. markets have just witnessed an extremely successful quarter. Strong economic data and robust earnings performances have been the primary drivers of equity market gains over this period. However, markets have also witnessed a fair share of turbulence, primarily due to trade-related concerns.

One sector, which has stood tall among multiple headwinds, is consumer discretionary. Over the past year, it has gone nearly toe to toe with much vaunted technology stocks and is only marginally behind them on a year-to-date basis.

A number of factors are working in favor of consumer discretionary stocks at the moment. Unemployment is at a record low while consumer confidence is close to a two-decade high. With retail sales expected to increase over the upcoming holiday season, this a great time to invest in consumer discretionary stocks.

Consumer Discretionary Stocks at Top of the Heap

Over the past year, the Consumer Discretionary Select Sector SPDR (XLY) has gained 27.7%. This is only marginally lower than the best performing S&P 500 sector, the Technology Select Sector SPDR (XLK), which is up 27.9% over the same period.

A similar picture emerges when one considers year-to-date increases. XLY and XLK have gained 16.8% and 18.4%, respectively, this year so far. And unlike their tech counterparts, consumer discretionary stocks have not had to suffer the volatility caused by trade tensions.

Unemployment at Record Low, Consumer Confidence Spikes

In August, unemployment rate remained flat at 3.9%. That is merely 0.2% higher than the lowest level recorded in 50 years. Further, average hourly earnings increased 77 cents or 2.9% over the past year. This is the fastest pace witnessed since June 2009, the last month of the Great Recession. (Read: Wage Spike Likely to Fuel Rate Hikes: 4 Bank Picks)

Meanwhile, the consumer confidence index increased from 134.7 in August to 138.4 in September. This is the highest level recorded since September 2000, when the Internet boom was nearing its end. The index is also not too far off from the all-time high of 144.7 recorded in the month of May of the same year. (Read: Consumer Confidence Hits 18-Year High: 5 Top-Ranked Picks)

Holiday Retail Sales Set to Increase

The holiday season marks one of the best sales periods of the year with retailers stocking products well ahead. Per Deloitte’s annual holiday season forecast, retail sales are expected to grow 5% to 5.6% from the prior season.

Sales between November 2017 and January 2018 grew 5%, amounting to $1.05 trillion, according to data from the Commerce Department. Deloitte forecasts that retail sales could top $1.10 trillion this year. (Read: Holiday Retail Sales Likely to Rise YoY: 5 Picks)

Our Choices

The consumer discretionary sector has emerged as one of the best performing sectors over the past year. A strong labor market and booming consumer confidence have been the primary catalysts driving these gains. This class of stocks is set to witness further gains as the holiday shopping season approaches.

Adding consumer discretionary stocks to your portfolio at the start of the fourth quarter looks prudent. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rent-A-Center, Inc. (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.

Rent-A-Center’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 11.4% over the past 30 days.

MCBC Holdings, Inc. (MCFT - Free Report) is a designer, manufacturer and marketer of sport boats and outdoor boats.

MCBC Holdings’ projected growth rate for the current year is 17.1%. The Zacks Consensus Estimate for the current year has improved 6.2% over the past 30 days.

Guess?, Inc. (GES - Free Report) designs, markets, distributes and licenses casual apparel and accessories for men, women and children per the American lifestyle and European fashion sensibilities.

Guess?’s projected growth rate for the current year is 48.1%.The Zacks Consensus Estimate for the current year has improved 3% over the past 60 days.

Johnson Outdoors Inc. (JOUT - Free Report) is a designer, manufacturer and marketer of watercraft, diving, outdoor equipment and marine electronics products on a global basis.

Johnson Outdoors’ projected growth rate for the current year is 4.2%. The Zacks Consensus Estimate for the current year has improved 11.4% over the past 60 days.

Vista Outdoor Inc. (VSTO - Free Report) develops, manufactures and distributes optics, accessories and eyewear.

Vista Outdoor’s Zacks Consensus Estimate for the current year has improved 15% over the past 60 days.

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