5 Stocks to Buy as Consumer Confidence Hits 16-Year High

Consumer confidence topped expectations in March...here's how to profit

U.S. consumer confidence leaped in March to the highest level since Dec 2000 amid growing labor market optimism. Prospects of lower taxes and uptick in infrastructure outlays since the election of President Donald Trump propelled consumer sentiment to fresh highs.

5 Stocks to Buy as Consumer Confidence Hits 16-Year HighSince Americans grew optimistic about the economy, things have been looking up for consumer stocks as well. Stocks of consumer discretionary companies are poised to grow on the signs of renewed consumer spending strength.

Consumer Confidence Tops Forecasts

As per the Conference Board, the consumer confidence index jumped to 125.6 in March from 116.1 in February, surpassing the consensus expectation of 113. Consumer confidence touched the highest level in more than 16 years, indicating that the economy is regaining momentum. Lynn Franco, director of economic indicators, of the Conference Board said that “consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months”.

Not surprisingly, the higher the household income, the higher will be the consumer confidence reading. The table below shows that household income only below $15,000 is less confident now than they were before the election:

Household Income

Oct 2016

Mar 2017

Under $15,000

73

71.7

$15,000-$24,000

74.5

84.1

$25,000-$34,999

92

107.6

$35,000-$49,999

79.9

113.4

$50,000-$74,999

100.4

135.2

$75,000-$99,999

117.4

145.7

$100,000-$124,999

125.3

149.7

$125,000 and over

132.7

158.9

Consumers’ assessment of both current business and labor market conditions improved sharply this month. About 27.1% of consumers had said that they expect better business conditions in the next six months, the largest since Dec 2003, while 21.5% anticipate their incomes to rise in the next six months, matching the highest since 2006.

Consumers also felt optimistic about the jobs market. Share of those saying that jobs are “plentiful” increased from 26.9% to 31.7%. On the other hand, those who claimed that jobs are “hard to get” decreased from 19.9% to 19.5%. This measure correlates to the jobs report in the Labor Department’s employment report.

Jobs Bolster Confidence

Household optimism was largely driven by the labor market’s health. The year had started off on a strong note from the job perspective. Employers added almost half a million jobs in the first two months of 2017, the best back-to-back performance since last summer. Not only were workers hired at a robust pace, unemployment came down and wages scaled higher.

U.S. employers added 235,000 new jobs in February, within the first full month of Trump’s win, steering past expectations of 191,000. The unemployment rate fell to 4.7% in February from 4.8% in January as more people entered the labor force in search of work, while fewer gave up searching for jobs. Wages for American workers, in the meanwhile, went up 0.2% in February to $26.09 an hour.

Let’s not forget that the U.S. had lost more than 5 million manufacturing jobs since 2000, mostly due to lower wages. But, Trump urged many top executives to hire in the U.S., while he promised to roll out favorable proposals, including a plan to overhaul the tax code and increase infrastructure spending. These measures will eventually help companies create jobs (read more: 4 Strong Buy Staffing Stocks on Blowout Job Creation).

Why Does Consumer Confidence Matter?

Such a record consumer confidence number is a significant reading since it has been, historically, good at predicting future consumer spending for the next three to six months. More the confidence household generates, more will they spend. And consumer spending accounts for roughly 70% of the U.S. economy, which isn’t a petty number.

These numbers influence companies’ production schedule, particularly big ticket items like cars, appliances, etc. In fact, the consumer discretionary sector is mostly affected as spending plays a major role in determining its revenues. Automobile stocks often track these numbers and so does appliance manufacturers, retailers, consumer discretionary manufacturers, big-ticket entertainment providers, jewelry retailers and cruise line operators, to name a few.

5 Stocks to Benefit as Consumers Regain Confidence

Since the aforementioned sector is positioned to benefit from this stellar reading on confidence level, picking stocks from such a sector will be a smart move. We have, thus, selected five consumer discretionary stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). Such stocks also boast of a VGM score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Central Garden & Pet Co (NASDAQ:CENT) produces and markets products for the pet, and lawn and garden supplies industries in the U.S. The company has a Zacks Rank #2 and a VGM score of ‘B’. The Zacks Consensus Estimate for its current year earnings advanced 2.2% over the last 60 days.

Central Garden & Pet is projected to give a return of 10.30% this year, more than the Consumer Products – Discretionary industry’s estimated increase of 3.4%. The company has outshined the industry in the last one year (+124.5% vs. 4.2%).

Century Casinos, Inc. (NASDAQ:CNTY) operates as a casino entertainment company worldwide. The company is based in Colorado Springs, CO. Century Casinos has a Zacks Rank #2 and a VGM score of ‘A’. The Zacks Consensus Estimate for its current year earnings rose 27.3% over the last 60 days.

Century Casinos is projected to give a return of 47.40% this year, more than the Gaming industry’s estimated increase of 14.80%. The company has outperformed the industry in the last one-year period (+28.2% vs. 14.5%).

Masonite International Corp (NASDAQ:DOOR) manufactures, and sells interior and exterior doors for new construction and repair, renovation, and remodeling sectors of the residential and non-residential building construction markets worldwide. The company is based in Tampa, FL. Masonite International has a Zacks Rank #1 and a VGM score of ‘A’. The Zacks Consensus Estimate for its current year earnings surged 18.1% over the last 60 days.

Masonite International is projected to give a return of 40% this year, more than the Furniture industry’s estimated increase of 8.5%. The company has traded higher than the industry in the last one year (+21% vs. 8.8%). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hilton Grand Vacations Inc (NYSE:HGV) develops, markets, sells and manages timeshare resorts, primarily under the Hilton Grand Vacations brand. The stock has a Zacks Rank #1 and a VGM score of ‘B’. The Zacks Consensus Estimate for its current year earnings increased 5.1% over the last 60 days.

Hilton Grand Vacations is projected to gain 8.2% this year, more than the Hotels and Motels industry’s estimated increase of 3.1%. The company has given a solid return of 11.8% over the last one-year period.

Burlington Stores Inc (NYSE:BURL) operates as a retailer of branded apparel products in the U.S. The company has a Zacks Rank #1 and a VGM score of ‘B’. The Zacks Consensus Estimate for its current year earnings increased 3.5% over the last 60 days.

Burlington Stores is projected to yield 20.30% this year, more than the Retail – Discount Stores industry’s estimated increase of 8.2%. The company has outperformed the industry in the last one year (+72.7% vs. -5.1%).

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