Spending Soars: 5 Consumer Discretionary Stocks With the Most Upside

Ritujay Ghosh

Tue, Sep 3, 2024, 8:45 PM5 min read

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Consumer spending rose in July, driven by higher spending on a wide variety of goods and services, indicating that the economy is growing at a solid pace. The increase in spending was also prompted by a rise in personal income and wages.

Given this situation, it would be ideal to invest in consumer discretionary stocks like Interface, Inc. TILE, Reservoir Media, Inc. RSVR, Stride, Inc. LRN, Kontoor Brands, Inc. KTB and Royal Caribbean Cruises Ltd. RCL.

Consumer Spending, Personal Income Rise

On Friday, the Commerce Department reported that consumer spending increased 0.5% in July, after advancing 0.3% in June. July’s jump was in line with the consensus estimate. When adjusted for inflation, consumer spending rose by 0.4% in July from 0.3% the month before.

Consumers showed solid spending on both goods and services, with notable increases in motor vehicles and parts. Expenditures also grew on housing and utilities, recreational services, and food and beverages.

This rise in spending was supported by a 0.3% increase in personal income in July, up from a 0.2% increase in June. Wages also saw a 0.3% increase in July, following a 0.2% gain in the previous month.

Signs of a Stable Economy

Wall Street saw a bloodbath in early August on growing fears that the economy could slip into a recession after data showed a 4.3% rise in the unemployment rate. However, apprehensions have subsided over the past three weeks after a series of economic data showed that the economy is still on solid ground and inflation, which has been its biggest threat, has been declining steadily.

The solid increase in consumer spending in July suggests that the spending trend in the second quarter continued its momentum. Robust consumer spending contributed to the growth of the second-quarter GDP. The U.S. economy expanded at an annualized rate of 3% last quarter. Consumer spending accounts for more than two-thirds of the U.S. economic activity.

Rate Cut Move to Boost Consumer Discretionary Stocks

The Federal Reserve has finally hinted at rate cuts in the coming days. The central bank hiked interest rates by 525 basis points to take its benchmark policy rate to a 23-year high in the range of 5.25-5.5%.

Market participants now expect at least a 25 basis-point rate cut in September, with two more by the end of this year. Lower borrowing rates should ease the pressure on consumers and boost spending.

5 Consumer Discretionary Stocks to Gain

We have thus chosen five discretionary that are likely to benefit in the near term. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Interface, Inc.

Interface, Inc. is the world's largest manufacturer of modular carpets, which it markets under the Interface and FLOR brands. TILE is committed to the goal of sustainability and doing business in ways that minimize the impact on the environment while enhancing shareholder value.

Interface’s expected earnings growth rate for the current year is 28%. The Zacks Consensus Estimate for current-year earnings has improved by 8.5% over the past 60 days. TILE presently sports a Zacks Rank #1.