Inflation has been cooling lately and the first signs can be seen in a rebound in consumer confidence. According to the latest data from the Conference Board, U.S. consumer confidence rose to an eight-month high in December after declining in the previous two months.

December’s jump in consumer confidence can easily be attributed to a decline in the cost of living. Also, a strong labor market prompted consumers to be more optimistic. 

Given this situation, it would be ideal to invest in consumer discretionary stocks, including hotel, travel and leisure, like Bowlero Corp. BOWL, RCI Hospitality Holdings, Inc. RICK, Hilton Grand Vacations Inc. HGV, Wyndham Hotels & Resorts, Inc. WH and Hyatt Hotels Corporation H. These are likely to benefit in the near term as a large number of Americans plan to travel during the upcoming holiday season.

Consumer Confidence Rebounds

The Conference Board said on Dec 21 that the consumer confidence index rose to 108.3 in December from 101.4 in November, beating analysts’ expectations of a reading of 101. This is also the highest reading since April.

Lower gasoline prices were a major factor in giving consumer confidence a boost in December. However, the primary factor behind the jump was a belief among consumers that inflation is finally slowing. Recent data shows that consumer prices increased moderately in November, indicating that inflation, although still high, may have peaked long back and is finally easing.

The expectation for 12-month inflation also declined to 6.7% from 7.1% in November, the lowest since September 2021. Also, the Present Situation Index, which is based on the consumers’ current assessment of the business and labor situation, improved to 147.7 in December from a reading of 138.3 in the previous month.

The Expectations Index, also known as the gauge of expectations, which indicates consumers’ expectations of business over the next six months of business, income and labor market conditions, improved sharply to 82.4 in December from 76.7 in the previous month.

Although inflationary pressures are still high and the Fed has indicated more rate hikes in 2023, confidence has somewhat been rebounding after the central bank finally slowed its pace of interest rate hikes.

The Fed increased interest rates by 50 basis points in December after going for 75-basis-point hikes on four consecutive occasions prior to that.

Consumers Optimistic

People now have more faith in the Fed’s approach to combating rising inflation as its previous measures have somewhat helped to ease soaring commodity prices. Growing economic optimism appears to have allayed concerns of a recession a couple of weeks after the Fed increased interest rates.

Also, the report comes as consumer sentiment increased in December. The preliminary consumer confidence index reading for December from the University of Michigan was 59.1, up from 56.8 in November and higher than the consensus estimate of 56.9.

Additionally, the reading for one-year inflation predictions dropped to 4.6% from 4.9% in November.  The fact that this is the lowest level in 15 months shows that people are gradually regaining confidence and still believe in a strong economic recovery.

Wholesale prices in the United States rose 7.4% year over year in November, a substantial decline from the 8% reported in October and its peak of 11.7% in March.

Also, a smaller interest rate increase is a sign that the Fed is slowly getting control over inflation. Despite the inflationary pressures, wages have been increasing. Average hourly wages grew 0.6% in November. Personal income increased 0.7% in October as well.

People now have more purchasing power, and as a result, they have been aggressively spending and traveling during 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 five stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bowlero Corp. owns and operates bowling centers. It also owns the Professional Bowlers Association. BOWK, formerly known as Isos Acquisition Corporation, is based in Richmond, VA.

Bowlero’s expected earnings growth rate for next year is 24.1%. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the past 60 days. BOWL presently carries a Zacks Rank #2.

RCI Hospitality Holdings, Inc. owns and operates adult nightclubs that offer live adult entertainment, restaurant and bar services. RICK operates adult nightclubs under the name Rick’s Cabaret, Club Onyx, XTC Cabaret, Tootsie’s Cabaret, Cabaret North, Jaguars and Cabaret East. RCI Hospitality also owns and operates adult Internet Websites.

RCI Hospitality’s expected earnings growth rate for next year is 15.8%. The Zacks Consensus Estimate for current-year earnings has improved 2.6% over the past 60 days. RICK holds a Zacks Rank #2.

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

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.       

Wyndham Hotels & Resorts, Inc. has 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 next year is 3.1%. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the past 60 days. WH currently has a Zacks Rank #2.

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 next year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 65.7% over the past 60 days. H presently has a Zacks Rank #2.

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Hyatt Hotels Corporation (H) : Free Stock Analysis Report

RCI Hospitality Holdings, Inc. (RICK) : Free Stock Analysis Report

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Bowlero Corp. (BOWL) : 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.


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