Top 5 Consumer Discretionary Stocks Despite Market Meltdown

Wall Street is suffering from severe volatility in September after performing impressively in the first eight months of this year, barring some fluctuations. On Sep 20, markets tumbled on concerns of a possible bankruptcy of a large Chinese property developer and its contagion effect on the global economy.

– Zacks

Additionally, the high-valuation of equities, the spread of the Delta string of coronavirus and a section of market participants’ expectation that the Fed may signal tapering of its $120 billion per month bond-buy program starting this year have dented investors’ confidence in this month. As a result, month to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have slid 3.9%, 3.6% and 3.6%, respectively.

However, the fundamentals of the U.S. economy stay solid and the overall trend of the market remains encouraging. Year to date, the three large-cap-specific indexes — the Dow, the S&P 500 and the Nasdaq Composite — have rallied 11%, 16% and 14.2%, respectively. The small-cap-centric Russell 2000 has gained 10.5%.  However, the mid-cap-centric S&P 400 has rallied 14.3%, second only to the S&P 500.  

At this stage, it may be fruitful to invest in mid-cap consumer discretionary stocks with a favorable Zacks Rank to get good return in the near term.

Importance of Mid-Cap Stocks

Investment in mid-cap stocks is often recognized as a good portfolio diversification strategy. These stocks combine the attractive attributes of both small and large-cap stocks. Top-ranked mid-cap stocks have a high potential to enhance their profitability, productivity and market share. These may even become large caps in due course of time.

If the economic recovery has slowed due to the spread of the Delta variant of coronavirus or any unforeseen external disturbances, mid-cap stocks will be less susceptible to losses than their large-cap counterparts owing to less international exposure.

On the other hand, if the crisis doesn’t worsen due to vaccination, these stocks will gain more than small caps due to established management teams, a broad distribution network, brand recognition and ready access to the capital markets.

Importance of Consumer Discretionary Sector

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.

U.S. retail sales rebounded in August after a sharp decline in July. Solid consumer spending defying the spread of the Delta variant has surprised many financial experts. The positive momentum is likely to continue as several market researchers have predicted strong holiday retail sales this year.

Personal savings of Americans are around an astonishing $2 trillion. The sky-high savings are allowing them to indulge in their demands that were pent up during lockdowns and are in turn compelling businesses to expand their scale of operations. In fact, higher inflationary pressure in the U.S. economy is primarily owing to massive aggregate demand.

Our Top Picks

We have narrowed down our search to five mid-cap (market capital > $5 billion 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.

Zacks Investment Research
Image Source: Zacks Investment Research

Columbia Sportswear Co. COLM designs, sources, markets, and distributes outdoor and active lifestyle apparel, footwear, accessories, and equipment in the United States, Latin America, the Asia Pacific, Europe, the Middle East and Africa, and Canada.

The company benefits from better-than-expected performance in U.S. wholesale and the DTC brick & mortar businesses. DTC e-commerce sales continued to rise, with consumers’ increased preference for online shopping. Columbia Sportswear is well positioned to gain from the existing consumer and outdoor patterns.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 6.2% over the last 60 days.

Boyd Gaming Corp. BYD operates as a multi-jurisdictional gaming company. It operates through three segments: Las Vegas Locals, Downtown Las Vegas, and Midwest & South. It is benefitting from initiatives to strengthen current operations and growth through capital investment as well as other strategic measures.

Expansion of online betting offerings along with FanDuel partnership bode well. Going forward, Boyd Gaming is optimistic about online gaming prospects in Louisiana. Also signs of improvement is being noticed in its destination business.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 38.9% over the last 60 days.

PVH Corp. PVH operates as an apparel company worldwide. It operates through six segments: Tommy Hilfiger North America, Tommy Hilfiger International, Calvin Klein North America, Calvin Klein International, Heritage Brands Wholesale, and Heritage Brands Retail.

Despite supply-chain disruptions, the company has gained from brand strength, particularly in Calvin Klein and Tommy Hilfiger, along with growth in its international unit. E-commerce sales momentum has continued. Solid performance across all regions and channels has aided businesses.

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 improved 29.8% over the last 30 days.

Mattel Inc. MAT is a children’s entertainment company, which designs and produces toys and consumer products worldwide. It operates through the North America, International, and American Girl segments.

The company has witnessed double-digit growth in its three power brands Barbie, Hot Wheels and Fisher-Price and Thomas & Friends. Given a strong product line-up, which includes core brands, licensed brands and lucrative product associations, Mattel remains well positioned for growth.

The company has an expected earnings growth rate of 94.4% for the current year. The Zacks Consensus Estimate for current-year earnings improved 17.6% over the last 60 days.

Ralph Lauren Corp. RL designs, markets and distributes lifestyle products in North America, Europe, Asia, and internationally. The company is progressing well with its “Next Great Chapter” plan that was announced in June 2018. This strategic growth plan focuses on delivering sustainable long-term growth and value creation.

The company has gained from solid performance across Europe and North America regions and its brand strength. Fast recovery across North America and Europe due to the easing of restrictions aided its businesses. Based on digital strength with higher AURs and the ability to translate top-line growth to operating margin expansion, the company has raised its view for fiscal 2022.

The company has an expected earnings growth rate of more than 100% for the current year (ending March 2022). The Zacks Consensus Estimate for current-year earnings improved 19% over the last 60 days.

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Mattel, Inc. (MAT): Free Stock Analysis Report
 
Columbia Sportswear Company (COLM): Free Stock Analysis Report
 
Ralph Lauren Corporation (RL): Free Stock Analysis Report
 
Boyd Gaming Corporation (BYD): Free Stock Analysis Report
 
PVH Corp. (PVH): Free Stock Analysis Report
 
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