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5 Top-Rated Stocks to Defy Fall in Q1 Consumer Spending

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The U.S. economy expanded at a pace of 2.3% in the first quarter, coming in above the consensus estimate. However, it represents a decline from the pace of 3% experienced during the last three quarters of 2017. While declines were felt across all components, consumer spending declined significantly after strong gains in the fourth quarter of 2017.

This may appear to be worrying at first glance, but first-quarter figures have been dismal in recent years due to statistical and weather-related issues. Other consumer-related indicators are also on an upswing which means that consumer spending should pick up over the rest of the year. Investing in consumer discretionary stocks looks like a smart option at this point.

Spending Posts Smallest Increase in 5 Years

Consumer spending, which makes up almost two-thirds of total GDP, dropped to a pace of 1.1% in the first quarter. This is the slowest pace witnessed since the second quarter of 2015. Further, it comes on the heels of the fourth quarter's 4% increase, the largest expansion in three years. It seems that during this period, consumers chose to focus on savings and paying off bills.

Further, it is likely that unusually cold weather acted as an impediment to spending. Following the post-hurricane increase during the final months of 2017, consumers also took a breather from spending on motor vehicles. Expenditure on clothing, footwear and food and beverages also declined, likely due to delayed tax refunds.

Rebound Likely in Upcoming Quarters, Other Indicators Positive

Most economists point out the first quarter has been the most disappointing one in five of the last eight years. This has been attributed to statistical factors such as residual seasonality. Further, the impact of Trump's tax cuts is yet to kick in. Moreover, an increase in wages and investment is likely to fuel stronger consumer expenditure in the quarters ahead.

Meanwhile, the employment cost index increased 0.8% in the first quarter, providing fresh evidence of an uptick in wages. Moreover, the cost of worker compensation advanced to a yearly pace of 2.7%, the largest increase since 2008. This is a logical outcome with unemployment a 17-year low of 4.1%.

Additionally, retail sales recently reversed the soft trend observed in the first few months of the year, increasing by 0.6% in March. Also, the Consumer Confidence Index rebounded in April, increasing from 127 to 128.7. With this increase, the index is only marginally below the level of 130 achieved in February, a level last witnessed in late 2000.

Further, the University of Michigan's consumer sentiment index came in at 98.8 for April, exceeding the estimated level of 98.2. This occurred primarily because of consumers' positive perception of their finances.

Our Choices

Though first-quarter GDP has come in above estimates, the fall in consumer spending has led to a decline from the level witnessed in the fourth quarter. However, this is likely only a temporary phenomenon, given the poor first quarter readings witnessed in recent years.

Additionally, a low unemployment rate, wage growth and the impact of tax cuts is likely to boost consumer spending in the quarters ahead. Adding consumer discretionary stocks to your portfolios looks like a prudent option at this time. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM score. You can see the complete list of today's Zacks #1 Rank stocks here .

Rocky Brands, Inc.RCKY is a leading designer, manufacturer and marketer of premium quality footwear and apparel.

Rocky Brands has a VGM Score of A. The company's projected growth rate for the current year is 29.3%.The Zacks Consensus Estimate for the current year has improved by 7.1% over the last 30 days.

American Public Education, Inc.APEI is an online provider of higher education, focused primarily on serving the military and public service communities.

American Public Education has a VGM Score of B. The company has expected earnings growth of 18.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 14.2% over the last 60 days.

Las Vegas Sands Corp.LVS is a leading international developer of multi-use integrated resorts primarily operating in the U.S. and Asia.

Las Vegas Sands has a VGM Score of B. The company's projected growth rate for the current year is 13.3%. The Zacks Consensus Estimate for the current year has improved by 2.7% over the last 30 days.

Bluegreen Vacations CorporationBXG markets, sells and manages timeshare resorts, urban destinations, clubs and residential lands.

Bluegreen Vacations has a VGM Score of A. The company's expected earnings growth for the current year 19.6%. The Zacks Consensus Estimate for the current year has improved by 5.7% over the last 60 days.

SP Plus CorporationSP provides professional parking, ground transportation, facility maintenance, security and event logistics services to property owners and managers in all markets of the real estate industry.

SP Plus has a VGM Score of B. The company has expected earnings growth of 30% for the current year. The Zacks Consensus Estimate for the current year has improved by 10.5% over the last 60 days.

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Las Vegas Sands Corp. (LVS): 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.


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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