The consumer discretionary sector has been having a slow 2024. Since the start of the year, the S&P 500 Consumer Discretionary Select Sector SPDR (XLY) has advanced just 12.5% as of Oct. 30. However, with the Fed having started cutting interest rates from its September meeting, the sector looks potentially lucrative.
While inflation has been coming down and the GDP advance estimate for third-quarter 2024 has shown that the economy is on the right path, the rate-cutting decision by the Fed is, in fact, the single most important factor driving discretionaries and making the retail segment tempting again. While the central bank cut rates by 50 basis points in September, it is currently widely expected to announce a further cut of 25 basis points at its November meet.
Lower interest rates will reduce new borrowing costs and encourage consumers to increase their discretionary purchases. When the pocket widens, pent-up demand can prompt higher spending on small and large luxuries.
The consumer discretionary market, which includes non-essential products like fashion, goods and household products, benefits from economic recovery and rising disposable incomes. Rising personal expenditure as a result of falling rates is often followed by a preference for luxury fashion and goods, and the sector witnesses growth. Hence, astute investors should consider betting on consumer discretionary stocks at present.
Since the start of the year, the S&P 500 Consumer Staples Select Sector SPDR (XLP) has advanced 13.7% as of Oct. 30. Like their discretionary counterpart, staples are also having a steady year, and the two make up the bulk of the retail sector.
The U.S. Census Bureau announced on Oct. 17 that retail sales for September increased 0.4%, in line with the consensus. This is significantly higher than the unrevised August increase of 0.1%. With interest rates slated to go down even further in the future and the holiday season knocking at the door, retail stocks appear to be prudent choices for investors.
Our Picks
We have selected four retail stocks that flaunt a Zacks Rank #1 (Strong Buy) or #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here
Casey's General Stores, Inc. CASY is a company operating convenience stores.
Casey’s expected earnings growth rate for the current year is 4.3%. The Zacks Consensus Estimate for its current-year earnings has improved 2.6% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
PetMed Express, Inc. PETS is a pet pharmacy.
PetMed’s expected earnings growth rate for the current year is 124.2%. The Zacks Consensus Estimate for its current-year earnings has improved 128.6% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of B.
Alibaba Group Holding Limited BABA is a global retail giant based in China.
Alibaba’s expected earnings growth rate for the current year is 3.7%. The Zacks Consensus Estimate for its current-year earnings has improved 3% over the past 60 days. The company has a Zacks Rank #1 and a VGM Score of B.
Deckers Outdoor Corporation DECK engages in the business of manufacturing and selling footwear, apparel and accessories.
Deckers Outdoor’s expected earnings growth rate for the next year is 12.1%. The Zacks Consensus Estimate for its current-year earnings has improved 4% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
PetMed Express, Inc. (PETS) : Free Stock Analysis Report
Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report
Casey's General Stores, Inc. (CASY) : Free Stock Analysis Report
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
