The year 2019 has proven to be a decent one for the leisure industry. So far, the Zacks Leisure and Recreation Services and Leisure and Recreation Products industry have gained 14% and 25.6%, respectively, while the S&P Zacks S&P 500 composite has rallied 27.3%.
The industry has benefited from a low unemployment rate this year and a steady rise in wages has increased household spending across the United States. At the same time, consumer confidence levels remain high.
Apart from higher household expenses, increased demand for leisure products and services is also aiding the leisure industry. According to a report by Statista, revenues at the U.S. sports and outdoor space are expected to see a compound annual growth rate of 3.6% from 2019 to 2023.
Will the Rally Fizzle Out?
Consumer demand for leisure services is closely linked to the performance of general economy, and is sensitive to business and personal discretionary spending levels. Decline in consumer demand due to adverse general economic conditions, poor travel patterns, lower consumer confidence and high unemployment can lower revenues and profitability of the companies.
Slower economic growth is expected to weigh on the market in 2020. The U.S. economy is expected to expand for the 12th consecutive year in 2020, but by only about 2%. The economy is expected to grow beyond 2% only when headwinds like trade disputes and slowing global growth subside.
Meanwhile, Trump administration's policy change on travel to Cuba will continue to hurt cruise operators in 2020.
Moreover, the tariff might substantially curtail consumer spending on leisure services. Trump’s stringent policies on immigration and tourist visas seem to have impelled international visitors to rethink their vacation plans to the United States. Evidently, there has been a continued slowdown in U.S.-bound air travel bookings ever since Trump took charge. Also, online searches by prospective travelers to the United States have declined sharply.
Dump These Leisure Stocks Now
In view of the above challenges, we believe 2020 will turn out to be more of a disappointment for the industry. We have picked three leisure stock players which investors would benefit from getting rid of. These stocks have a Zacks Rank #4 (Sell).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Pool Corp. POOL: This Zacks Rank #4 company is the world's largest wholesale distributor of swimming pool supplies, equipment and related products. In addition, it is a leading regional wholesale distributor of irrigation and landscape products. Unfavorable seasonality along with macroeconomic headwinds remains pressing concern for the company. Also, rising expenses have been affecting Pool Corp. The Zacks Consensus Estimate for its 2020 EPS has moved down by 0.15% over the past 30 days.
Price Performance (YTD): 43.5%
Clarus Corporation CLAR: This Zacks Rank #4 company is a leading developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, and sport markets. Tariff related issues and declining demand for its new products are impacting its performance. The Zacks Consensus Estimate for its current quarter EPS has moved down by 23% over the past 30 days.
Price Performance (YTD): 36.7%
OneSpaWorld Holdings Limited OSW: This Zacks Rank# 4 company headquartered in Nassau, Bahamas is one of the largest health and wellness services companies in the world. It has been suffering from Hurricane Dorian that negatively impacted its cruise line and destination resort revenues. The Zacks Consensus Estimate for 2020 EPS has moved down by 6.7% over the past 30 days.
Price Performance (YTD): 69.9%
Zacks Top 10 Stocks for 2020
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