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Consumer Confidence Falls But Remains Robust: 5 Top Picks

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Consumer confidence slipped from an 18-year peak in November, the first such decline in five months. Fresh data from the Conference Board reveals that the outlook for business conditions has dulled. Respondents are also unsure about how fast their income will grow next year.

However, the index remains at an appreciably high level. Further, consumers are confident that economic expansion will continue in 2019. Significantly, the confidence in the job market remains undimmed, with unemployment at a near 50-year low.

Notably, consumer spending makes up nearly 70% of U.S. GDP. And despite the slight decline in confidence, American consumers remain an upbeat lot. This is why it makes sense to invest in consumer discretionary stocks heading into the New Year.

Outlook for Future Business Conditions Declines

The Consumer Confidence index declined from 137.9 in October to 135.7 in November. However, it still came in above the estimated level of 135.4. The Present Situation Index, which gauges consumers’ views about current market conditions, inched upward from 171.9 to 172.7.

This measure of the current state of the economy is only marginally lower than its highest level in 18 years. However, the Expectations Index, which is a measure of the short-term outlook, declined from 115.1 to 111.0.

Per Lynn Franco of the Conference Board, this was “primarily due to a less optimistic view of future business conditions and personal income prospects.” Analysts believe that this is a reflection of the recent stock market turbulence and concerns about trade conflicts and rising interest rates.

Robust Labor Market Fuels Consumer Resilience

The need to closely monitor consumer sentiment stems from the fact that consumer expenditure makes up nearly two-thirds of U.S. GDP. Currently, consumer spending is in ruddy health, increasing at a 4% annual pace from July to September, the fastest pace since late 2014.

Robust consumer spending is in turn fueled by a strong labor market. Currently, the unemployment rate is near a 50-year low of 3.7%. This is exactly why the number of respondents, who believe jobs are “plentiful” increased from 45.4% to 46.6%, the largest share since January 2001.

According to Franco, “consumers are still quite confident that economic growth will continue at a solid pace into early 2019.” Analysts believe that despite a small slip in confidence and a recognition that economic growth may be slowing, consumers remain upbeat. The resilience in consumer spending is the best indicator of their confidence.

Our Choices

Despite, the marginal decline in consumer confidence, American consumers remain optimistic about current prospects. They do remain concerned about income growth in the future, though. Further, there is a recognition that growth may moderate in 2019. But the pace of expansion should still remain fairly robust.

Given that consumer confidence remains largely resilient, supported by a robust labor market, consumer discretionary stocks are once again strong bets. This is because personal consumption makes up two-thirds of total GDP. 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 good VGM Score. 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 U.S. offering durable goods such as consumer electronics, appliances, computers, furniture and accessories.

Rent-A-Center has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 12.5% over the last 30 days.

Hudson Ltd. (HUD - Free Report) is a travel retailer, operating primarily in North America.

Hudson has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 14% over the last 30 days.

Hamilton Beach Brands Holding Company (HBB - Free Report) , along with its subsidiaries, is a designer, marketer and distributor of branded electric household and specialty housewares appliances, as well as commercial products for restaurants, bars and hotels.

Hamilton Beach has a VGM Score of A. The company’s projected growth rate for the current year is 21.2%.

The Marcus Corporation (MCS - Free Report) is an owner and operator of hotels, resorts and movie theaters.

The Marcus Corporation has a VGM Score of B. The company’s expected earnings growth for the current year is 21.8%. The Zacks Consensus Estimate for the current year has improved 6.8% over the last 60 days.

Rocky Brands, Inc. (RCKY - Free Report) is a leading designer, manufacturer and marketer of premium quality footwear and apparel.

Rocky Brands has a VGM Score of B. The company’s expected earnings growth for the current year is 57.8%. The Zacks Consensus Estimate for the current year has improved 7.6% over the last 60 days.

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