On May 29, the Conference Board reported U.S. consumer confidence data for the month of May. The data revealed recovery in the Americans’ level of confidence in the economy following a drop in April. It also remained near its 18-year high level after it reached the mark in February.
This high level of confidence indicates that consumers are expecting U.S. economic expansion to continue in the near-term. Improvement in income, jobs and after-tax pay of U.S. consumers are most likely to negate worries about geopolitical conflicts and stock market volatility. At this stage, investment in consumer discretionary stocks with favorable Zacks Rank is likely to be a prudent move.
Robust May Data
For May, the Conference Board's measure of consumer confidence index is pegged at 128.0 compared with April’s revised reading of 125.6. May’s reading was also slightly better than the consensus estimate of 127.8. The Present Situation index, reflecting current conditions, reached its 17-year high of 161.7 from 157.5 in the prior month. The Expectations index also rose 105.6 from 104.3 in April.
According to the Conference Board, consumers’ assessment of current conditions improved in May. Those claiming business conditions as “good” increased from 34.8% to 38.4%, while those claiming business conditions as “bad” decreased from 12.3% to 12.0%.
Strong Retails Sales Data
On May 11, the Commerce Department reported that U.S. retail sales rose 0.3% for the month of April, at par with the consensus estimate. Retail sales are up for two straight months and also advanced 4.7% year over year. Notably, nine out of a total of 13 industries witnessed an increase in sales in April.
Solid Labor Market
The unemployment rate declined from 4.1% in March to 3.9% in April, its lowest level in nearly 18 years. This is the first time in six months that the unemployment rate has undergone a decline. Healthy non-farm payrolls data for April along with continuing decline in the weekly jobless claims is a clear indication of the employers’ intentions to continue recruiting.
Healthy Earnings Momentum
First-quarter earnings results have been exhibiting strong momentum so far. Total earnings are expected to be up 24% from the same period last year on 8.5% higher revenues. This is the highest quarterly earnings growth pace in seven years. For full-year 2018, total earnings for the S&P 500 index are anticipated to be up 19.5% on 5.9% higher revenues. (Read more: Can the Sunshine for Retail Stocks Continue?)
A big driver of these positive revisions is obviously the direct impact of the massive $1.5 trillion (including corporate and personal) tax cuts. The full effect of the tax overhaul is yet to reflect in the economy as the measures were implemented in January only.
How to Identify the Potential Winners?
Consumer spending accounts for about 70% of U.S. economic activity. Strong consumer confidence data indicates that the economy is likely to witness robust growth in the coming months. Consequently, adding consumer discretionary stocks to your portfolio makes sense at this point. However, picking winning stocks can be a difficult task.
This is where our VGM Score comes in Handy. 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 the 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.
Shuffle Your Portfolio: 5 Key Picks
Chart below depicts price performance of our five picks in the last three months.
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Rocky Brands Inc. RCKY is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under brand names Rocky Outdoor Gear, Georgia Boot, Durango, Lehigh, and the licensed brand, Dickies.
Rocky Brands has a VGM Score of A. It has expected earnings growth of 29.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.1% over the last 60 days.
Shoe Carnival Inc. SCVL is one of the largest family footwear retailers in the United States, offering a broad assortment of moderately priced dress, casual and athletic footwear for men, women and children.
Shoe Carnival has a VGM Score of A. It has expected earnings growth of 34.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.2% over the last 60 days.
Delta Apparel Inc. DLA is a vertical manufacturer of knitwear products for the entire family. The products it manufactures are sold under brands of Delta Pro-Weight, Delta Magnum Weight, Healthknit and Quail Hollow Sportswear.
Delta Apparel has a VGM Score of B. It has expected earnings growth of 12.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 11.1% over the last 60 days.
Johnson Outdoor Inc. JOUT is a leading global outdoor recreation company. It designs, manufactures and markets a portfolio of consumer-preferred brands across four categories: Watercraft, Marine Electronics, Diving and Outdoor Equipment.
Johnson Outdoor has a VGM Score of B. It has expected earnings growth of 28.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 23.8% over the last 60 days.
Urban Outfitters Inc. URBN is an innovative specialty retailer and wholesaler which offers a variety of lifestyle merchandise to highly defined customer niches through Urban Retail stores in the United States, Canada, and Europe.
Urban Outfitters has a VGM Score of A. It has expected earnings growth of 47.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 9.8% over the last 60 days.
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