The Consumer Discretionary sector is quite competitive and fragmented with companies vying for a bigger slice of the market on attributes such as price, products and speed-to-market. Undoubtedly, consumers remain the driving factor of the sector. An improving job scenario, rising wages and spiraling confidence are encouraging consumers to spend more. Falling interest rates have made borrowings cheaper for consumers.
Recently, the Commerce Department reported that consumer spending rose 0.4% at an annualized rate in November, the best rise since July. In fact, personal income increased 0.5% in November after rising 0.1% in October. Moreover, growth in income was strongest since August.
Americans continue to splurge, a tell-tale sign that the economy is growing at a steady pace. As consumers continue to remain confident about their well-being, it seems prudent to invest in stocks that are poised to grow on rising consumer spending.
However, one cannot ignore some facts. The sector has turned highly competitive. To gain market share, companies are constantly making investments to upgrade themselves and indulging in marketing as well as advertising activities. Again, the imposition of tariffs due to the U.S.-China trade war might hurt the near-term results of some companies in this industry. Any increase in price may compel consumers to hold back their discretionary spending.
Considering the aforementioned factors, if investors are eager to lap up opportunities in this volatile and speculative sector, a prudent move would be to buy the beaten-down stocks with encouraging fundamentals and solid earnings growth prospects. Here we have highlighted three stocks that have lost more than 10% year to date but still look well poised for 2020. These stocks carry a Zacks Rank of #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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3 Prominent Picks
Investors can count on GreenTree Hospitality Group Ltd. GHG, a franchised hotel operator. This Zacks Rank #1 company has a long-term earnings growth rate of 17.6%. The Zacks Consensus Estimate for earnings for the next financial year has remained unchanged at $5.82 over the past 30 days and indicates a sharp year-over-year improvement of roughly 20%. The stock has a VGM Score of B. We note that the stock has fallen 10.7% year to date.
American Outdoor Brands Corporation AOBC, which is a manufacturer and seller of firearms and accessory products for the shooting, hunting and outdoor enthusiasts, is a solid bet with a VGM Score of A. This Zacks Rank #2 company has a trailing four-quarter positive earnings surprise of 9.1%, on average. Moreover, the Zacks Consensus Estimate for earnings for the next financial year has improved by 11.5% to $1.16 over the past 30 days and suggests year-over-year growth of 43.2%. We note that the stock has fallen 28.2% so far in the year.
You can also consider Entercom Communications Corp. ETM, a media and entertainment company, engaged in radio broadcasting business. This Zacks Rank #2 company has delivered a positive earnings surprise of 16.7% in the last reported quarter. Moreover, the Zacks Consensus Estimate for revenues and earnings for next financial year indicates year-over-year growth of 3.9% and 31.7%, respectively. The stock has a VGM Score of A. We note that the stock has fallen 15.3% year to date.
Zacks Top 10 Stocks for 2020
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