Sky-high prices have been a major concern for more than a year now but that hasn’t stopped consumers from spending as demand for goods and services remains high. The solid spending is being aided by a steady rise in personal income as the labor market, despite softening lately, remains resilient.
Also, the Federal Reserve’s aggressive rate hike policy has seen inflation decline sharply over the past year, which has somewhat cooled commodity prices, giving consumers the confidence to spend more.
Given this situation, investing in consumer discretionary stock like Guess?, Inc. GES, Sonos, Inc. SONO, Bragg Gaming Group Inc. BRAG and Hilton Worldwide Holdings Inc. HLT is a wise decision.
Personal Income, Spending Rise
The Bureau of Economic Analysis said on Sep 29 that personal income jumped $87.6 billion, rising 0.4% month over month in August after increasing 0.2% in July. Moreover, disposable personal income, which is personal income after paying personal current taxes rose 0.2% in August.
Simultaneously, personal spending also increased 0.4% to $83.6 billion month over month in August.
Personal outlays, which include consumption expenditures, personal interest payments, and current transfer payments, rose a solid $86 billion in August.
The Bureau of Economic Analysis said in its report that personal income rose primarily because of a jump in compensation, rental income, personal income receipts on assets, and proprietor’s income.
Understandably, consumer spending is being driven by higher personal income as inflation continues to decline steadily. The Fed has increased interest rates by 525 basis points since March 2022, taking its benchmark rate to the range of 5.25-5.5%.
This has seen inflation declining to more than half from its peak of 9.1% in June 2022. The personal spending and income data was released on the same day the Commerce Department released the personal consumption expenditure (PCE) index reading for August.
The PCE index, the Fed’s preferred inflation gauge, rose 0.4% month over month in August. However, it was primarily driven by a surge in energy prices. Core PCE, which excludes the volatile food and energy prices, rose a modest 0.1%, less than the consensus estimate of 0.2%, in August.
Year over year, PCE inflation rose 3.5%, while core PCE inflation increased 3.5%, lower than July’s reading of 4.3%.
Consumer spending is likely to get a boost further as the Fed left its interest rates unchanged in September and hinted at only one more hike of a quarter percentage point this year before it goes for rate cuts in 2024.
Our Choices
Therefore, from an investment perspective, we have identified four stocks from the consumer discretionary sector that are likely to capitalize on reduced inflationary pressure. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Guess?, Inc. designs, markets, distributes and licenses casual apparel and accessories for men, women and children as per the American lifestyle and European fashion sensibilities. GES’ collection includes contemporary apparel, denim, handbags, eyewear, watches, footwear, and other related consumer products.
Guess’expected earnings growth rate for the current year is 9.9%. The Zacks Consensus Estimate for the current-year earnings has improved 7.1% over the past 60 days. GES currently sports a Zacks Rank #1.
Sonos, Inc. operates as a consumer electronics company that is primarily involved in the manufacturing of smart speakers with immersive sound experiences. SONO leverages evolving consumer technology and entertainment trends to be on par with the audio consumption patterns of customers that are largely characterized by fast-tracked adoption of voice assistants and streaming services.
Sonos’ expected earnings growth rate for the current year is 95.9%. The Zacks Consensus Estimate for the current-year earnings has improved 4.3% over the past 60 days. SONO presently has a Zacks Rank #1.
Bragg Gaming Group Inc. is a gaming technology provider. BRAG’s main portfolio asset is ORYX Gaming, business-to-business i-gaming platform, product aggregator, casino content, managed sportsbook and managed services provider.
Bragg Gaming Group’s expected earnings growth rate for the current year is 111.8%. The Zacks Consensus Estimate for the current-year earnings has improved 100% over the past 60 days. BRAG presently has a Zacks Rank #2.
Hilton Worldwide Holdings Inc. is a hospitality company that owns, leases, manages, develops, and franchises hotels and resorts. As of Dec 31, 2022, HLT’s development pipeline comprised nearly 2,820 hotels, with nearly 416,400 rooms across 118 countries and territories — including 30 countries and territories where it currently has no running hotels.
Hilton Worldwide’s expected earnings growth rate for the current year is 23.7%. The Zacks Consensus Estimate for the current-year earnings has improved 1% over the past 60 days. HLT presently has a Zacks Rank #2.
Guess?, Inc. (GES): Free Stock Analysis Report
Sonos, Inc. (SONO): Free Stock Analysis Report
Hilton Worldwide Holdings Inc. (HLT): Free Stock Analysis Report
Bragg Gaming Group Inc. (BRAG): Free Stock Analysis Report
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