Inflation has been the biggest cause of concern this year but consumer sentiment has been slowly improving lately, thanks to a drop in the cost of living. The University of Michigan’s preliminary December reading showed that consumer sentiment improved in December.

A lot of factors are responsible for consumer sentiment getting a boost. Higher wages, a drop in prices of consumer goods and an indication from the Fed that it may go slow on interest rate hikes are helping people get back the lost confidence. Given this scenario, stocks like Hilton Grand Vacations Inc. HGV, Hyatt Hotels Corporation (H), Bowlero Corp. BOWL and Wyndham Hotels & Resorts, Inc. WH are likely to benefit in the near term.

Consumer Sentiment Shows Improvement

The University of Michigan’s preliminary December reading of the consumer sentiment index came in at 59.1, increasing from 56.8 in November and beating the consensus estimate of 56.9. Understandably, the jump was quite unexpected.

Also, the reading for one-year inflation expectations declined to 4.6% from 4.9% in November. This is the lowest level in 15 months, indicating that people are slowly getting back confidence and still have faith in a solid economic rebound.

Lately, a number of factors are helping to lift consumer sentiment, which had been declining for the past few months as soaring inflation and the Fed’s aggressive rate hike policy to get control over it raised fears of economic slowdown.

These fears have been slowly alleviating. Although prices are still high, wholesale inflation declined for the fifth straight month in November, indicating that inflationary pressures have finally started easing. Wholesale prices in the United States increased 7.4% in November on a year-over-year basis, which is sharply down from 8% recorded in October and its peak of 11.7% in March.

The Fed, which is due to meet today for its two-day December policy meeting, last week indicated that it might scale back the pace of its rate increases, starting this month. The Fed had been aggressively hiking interest rates this year to fight inflation. The central bank hiked interest rates by 75 basis points for the fourth straight time last month.

Following Fed Chair Jerome Powell’s comments last week, a 50-basis point rate hike is expected this time, which will bring the federal funds rate within the benchmark range of 3.75% to 4%.

A lower interest hike is an indication that inflation is finally easing. Also, despite inflationary pressure, wages have been on the rise. Average hourly wages increased 0.6% in November after rising 0.5% in October. Also, personal income rose 0.7% in October.

This is giving people more purchasing power, which led to record high spending during the Thanksgiving weekend, hinting at an impressive start to the holiday season. Thus, investing in consumer discretionary stocks would be ideal during this time.

Our Choices

Given this scenario, it would be wise to invest in these four stocks. Each of the stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hilton Grand Vacations is engaged in the hospitality business. HGV markets and operates vacation ownership resorts. Hilton Grand Vacationsalso manages and serves club membership programs, which include Hilton Grand Vacations Club(R) and The Hilton Club(R).

Hilton Grand Vacations’ expected earnings growth rate for next year is 24.6%. The Zacks Consensus Estimate for current-year earnings has improved 19.3% over the past 60 days. HGV currently sports a Zacks Rank #1.                               

Hyatt Hotels Corporation is a leading global hospitality company engaged in the development, ownership, operation, management, franchising and licensing of a portfolio of properties, including hotels, resorts and residential and vacation ownership properties around the world. As of Mar 31 2022, H’s portfolio included more than 1,150 properties in 71 countries across six continents.

Hyatt Hotels Corporation’s expected earnings growth rate for the next year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 70.1% over the past 60 days. H presently has a Zacks Rank #2.

Bowlero is an owner and operator of bowling centers as well as the owner of the Professional Bowlers Association. BOWK, formerly known as Isos Acquisition Corporation, is based in RICHMOND, Va.

Bowlero’s expected earnings growth rate for the next year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the past 60 days. BOWL presently carries a Zacks Rank #2.

Wyndham Hotels & Resorts provides a hotel and resort chain. WH operates primarily in Canada, Mexico, Colombia, Ecuador, Turkey, Germany, the UK, the Caribbean and Margarita Island in Venezuela. Wyndham Hotels and Resorts is headquartered in New Jersey.

Wyndham Hotels & Resorts’ expected earnings growth rate for the current year is 21.5%. The Zacks Consensus Estimate for current-year earnings has improved 5.5% over the past 60 days. WH currently has a Zacks Rank #2.

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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.


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