The consumer discretionary sector is doing better than most others in 2023. Since the year started, the Consumer Discretionary Select Sector SPDR (XLY) has grown 32.2%, gaining 12.3% in June. The cyclical nature of the stocks ensures that when the economy expands, companies engaged in such businesses generally do well. The opposite happens when an economy shows signs of slowing down.
However, inflation has the biggest and most far-reaching impact on consumer discretionary stocks. When prices of consumer goods are in a state of continuous increase, people rein in spending on non-essential goods. In recent months, though, economic indicators have firmly suggested that inflation is on its way down, and market participants have remained hopeful that the Fed would finally end its current rate-hiking cycle. As a result, growth stocks like technology and consumer discretionaries have been on an upward curve.
U.S. consumer prices increased modestly in June and logged their smallest annual increase in more than two years, suggesting that inflation has continued to subside. The Department of Labor reported that the Consumer Price Index (CPI) increased 0.2% month over month in June compared with the consensus estimate of 0.3%, after rising 0.1% in May. Year over year, CPI increased 0.3%. Core CPI rose 0.2%, after increasing 0.4% in May.
This entails that there will be further purchasing power in consumers’ pockets, and on cue, spending on non-essentials will increase. Hence, astute investors should consider betting on consumer discretionary stocks at present.
Our Picks
We have narrowed our search to four consumer discretionary stocks that have good potential for the rest of 2023. These stocks have seen positive earnings estimate revisions in the past 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Trip.com Group Limited TCOM has been benefiting from its recent and pioneering venture into the realm of non-fungible tokens. What has also helped its business in 2023 is its new collaboration with Mastercard in an endeavor to provide more offers and benefits to its travelers. TCOM has also brought in employee-focused policies, which has enhanced its reputation.
Zacks Rank #1 Trip.com Group has an expected revenue and earnings growth rate of 101.6% and 531%, respectively, for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 67.9% over the past 60 days.
Guess’, Inc. GES is benefiting from its sales in Europe and a focus on six strategic initiatives. These core GES strategies include organization and culture, functional capacities, brand relevance with three main consumer groups (heritage, Millennials and Generation Z customers), customer focus, product brilliance and an international footprint.
Zacks Rank #2 Guess’ has an expected revenue and earnings growth rate of 2.8% and 2.6%, respectively, for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 4.9% over the past 60 days.
Marriott International Inc. (MAR) is benefiting from solid demand across all customer segments and expansion plans. MAR is also gaining from reopening international borders and leniency in travel restrictions, which have resulted in solid leisure demand along with business and cross-border travel improvements.
Zacks Rank #2 Marriott International has an expected revenue and earnings growth rate of 13.1% and 25.7%, respectively, for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 0.4% over the past 60 days.
DraftKings Inc. DKNG has been benefitting from the recent tech resurgence and the favorable reaction from markets to its possibly prudent withdrawal from a rival buyout deal. The company is a young player in the sports betting market and has been making the most of relaxed laws in various states.
Zacks Rank #2 DraftKings has an expected revenue and earnings growth rate of 45.2% and 42.1%, respectively, for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 2.1% over the past 60 days.
Marriott International, Inc. (MAR): Free Stock Analysis Report
Guess?, Inc. (GES): Free Stock Analysis Report
Trip.com Group Limited Sponsored ADR (TCOM): Free Stock Analysis Report
DraftKings Inc. (DKNG): Free Stock Analysis Report
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