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5 Consumer Discretionary Stocks Beating the Odds

The Consumer Discretionary Select Sector SPDR XLY has outperformed the broader S&P 500 sectors so far this year. Meanwhile, most of the sectors are finding it difficult to end in positive territory. The sector was the best performer among the S&P 500 sectors in both year-to-date and one year period.

This sector, which tracks the performance of S&P 500 consumer discretionary stocks, has gained nearly 3.9% this year, in contrast to a loss of 5.8% in the S&P 500 index. Moreover, the sector has a 1-year gain of 11.9%, comparing favorably to the S&P 500's loss of 2.2%.

Also, the consumer discretionary sector registered a solid gain of nearly 0.8% in last one month, while the S&P 500 index has declined more than 1.6%. Favorable economic scenario including strong labor market condition and plunge in oil prices played an important role in boosting the sector. In this scenario, we have highlighted five stocks from this sector which have proven to be star performers in this sector in recent times.

Concerns Hurting Benchmarks

Recent slump in markets following several concerns including global growth worries and decline in oil prices dragged down most of the major benchmarks into the negative territory for the year. A flurry of weak economic data out of China emerged as the main reasons behind the global growth worries over the last couple of months.

The preliminary September China's PMI survey by Caixin Media and Markit that released yesterday came in weaker than expected, with the index dropping to its lowest level in more than 6 years at 47. Moreover, The Asian Development Bank (ADB) trimmed China's economic growth forecast for 2015 to 6.8% from an earlier projection of 7.2%.

Meanwhile, plunge in oil prices also had a negative impact on markets in recent times. The prices of WTI crude oil and Brent crude oil plunged again yesterday by 4.2% and 2.8% to $44.48 and $47.75, respectively, following increase in gasoline inventories.

The Goldman Sachs Group Inc. GS has forecasted that the oil prices may decline to as low as $20 a barrel. The battle between the U.S. shale producers and OPEC to capture the commodity market by boosting production emerged as the main reason behind the plunge.

The Energy Select Sector SPDR XLE - an index measuring performance of S&P 500 energy companies - slumped 21.7% and 32.7% in the year-to-date and last one year period, respectively. It was the worst performer among the broader S&P 500 sectors in the periods mentioned above.

Factors Driving Consumer Discretionary Space

Increase in consumer spending played an important role in boosting the economy this year. According to the "second estimate" released last month, real personal consumption expenditure rose 3.1% during the second quarter, outpacing the first quarter's growth rate of 1.8%.

Solid gains in consumer spending, which contributes more than 75% to economic activity, helped second quarter GDP to advance at a pace of 3.7%, significantly higher than first quarter's rise of only 0.6%. Also, the personal consumption expenditure (PCE) price index gained 1.5% during the quarter, compared to first quarter's 1.9% decline.

Meanwhile, a 6.7% gain in consumer credit in July also indicated increase in consumer expenditure. Favorable job market conditions also played an important role in lifting consumer sentiment in recent months. Though the U.S. job numbers in August grew at the most sluggish pace in five months, the unemployment rate dropped to 5.1% from 5.2%, the lowest since Apr 2008.

Meanwhile, in its recent Federal Open Market Committee (FOMC) meeting, the Fed forecasted the unemployment rate to decline to 4.8% by next year and expects it to remain that low for nearly three years. Moreover, continuous decline in oil prices also helped consumers to spend more in consumer goods in recent times.

5 Star Performers

Gains in the consumer discretionary sector are likely to continue in the coming months as we inch closer to the upcoming holiday season. While consumers will want to make the most of this holiday season amid favorable economic scenario, companies from the consumer discretionary will want to attract the major portion of the spending by flooding the markets with offers and promotions. In this environment, we have selected five stocks with strong fundamentals from this sector that registered solid gains and are likely to continue the rally.

From this sector, we primarily screened stocks that carry Zacks Rank #1 (Strong Buy) or #2 (Buy). Then we narrowed down our choices with the help of our new style score system . Essentially, we searched for stocks with Growth Style Scores of 'A' or 'B.'

Our research shows that stocks with Growth Style Scores of 'A' or 'B' when combined with Zacks Rank #1 or #2 offer the best investment opportunities in the growth investing space.

Amazon.com Inc.AMZN is one of the largest online retailers that operates throughout the globe.

This Zacks Rank #1 (Strong Buy) company has a Growth Style Score of 'A'. AMZN has a current year growth estimate of more than 100%, significantly higher than the industry growth rate of 12.5%. Amazon.com has a year-to-date return of 72.7%.

Mohawk Industries Inc.MHK is a leading global manufacturer of flooring products that enhance residential and commercial space.

MHK has a Zacks Rank #2 (Buy) and a Growth Style Score of 'A'. The company has a current year growth estimate of 25.1%, above the industry growth rate of 19.9%. Mohawk Industries has a year-to-date return of 26.8%.

Darden Restaurants, Inc.DRI is one of the largest casual dining restaurant operators with more than 1,500 restaurants in the US and Canada.

This Zacks Rank #2 (Buy) company has a Growth Style Score of 'A'. DRI has a current year growth estimate of 22.9%, higher than the industry growth rate of 14.2%. Darden Restaurants has a year-to-date return of 21.3%.

DR Horton Inc.DHI is one of the leading national homebuilders, primarily engaged in the construction and sale of single-family houses.

DHI has a Zacks Rank #1 (Strong Buy) and a Growth Style Score of 'A'. The company has a current year growth estimate of 34.3%, above the industry growth rate of 16%. Mohawk Industries has a year-to-date return of 19.2%.

Carnival CorporationCCL operates as a cruise and vacation company.

This Zacks Rank #2 (Buy) company has a Growth Style Score of 'B'. CCL has a current year growth estimate of 32.1%, higher than the industry growth rate of 12.5%. The company has a year-to-date return of 13.6%.

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AMAZON.COM INC (AMZN): Free Stock Analysis Report

CARNIVAL CORP (CCL): Free Stock Analysis Report

DARDEN RESTRNT (DRI): Free Stock Analysis Report

GOLDMAN SACHS (GS): Free Stock Analysis Report

D R HORTON INC (DHI): Free Stock Analysis Report

MOHAWK INDS INC (MHK): Free Stock Analysis Report

SPDR-EGY SELS (XLE): ETF Research Reports

SPDR-CONS DISCR (XLY): ETF Research Reports

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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.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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