Wall Street has moved mostly sideways so far in March after rallying strongly for the first two months of 2024. Month to date, the Dow and the Nasdaq Composite are down 0.6% and 0.4%, respectively, while the S&P 500 is up 0.4%. However, sector and stock-specific activities are in full swing.
The consumer discretionary sector comprises businesses that sell goods and services that are considered non-essential by consumers. These are the products that consumers can avoid without any major consequences to their well-being. In fact, these goods are desirable only if the available income of an individual is sufficient to purchase them.
The U.S. GDP rose 2.5% in 2023 compared with 1.9% in 2022. At the beginning of 2023, the consensus estimate for full-year GDP was 2%. On Mar 7, the Atlanta Fed GDPNow tracker forecast a 2.5% growth rate for first-quarter 2024, indicating, no chance of a near-term recession.
Meanwhile, personal income increased unexpectedly by 1% in January compared with the consensus estimate as well as December’s reading of 0.3%. Personal consumption expenditure increased 0.2% in January in line with the consensus estimate.
Moreover, the sector is generally recognized as being growth-oriented. Notably, growth sectors are highly sensitive to the movement of the market interest rate and are inversely related. Recently Fed Chairman Jerome Powell gave his testimony before the Senate after appearing before the House of Representatives a day before.
On Mar 6, Powell said the central bank is likely to initiate interest rate cuts this year but not any time soon. However, on Mar 7, he indicated that interest rate cuts may not be too far off if the inflation rate moves in line with the Fed’s expectations in the near future.
Our Top Picks
We have narrowed our search to five consumer discretionary stocks that have strong growth potential for 2024. These stocks have seen positive earnings estimate revision in the last 30 days. Each of our picks carries either a Zacks Rank # 1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Zacks Investment Research
Image Source: Zacks Investment Research
Netflix Inc. (NFLX) added 13.12 million paid subscribers globally in fourth-quarter 2023, with a rise of 1% in average revenue per subscription. NFLX attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general.
NFLX is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content.
For the first quarter of 2024, Netflix forecasts revenues of $9.24 billion, reflecting growth of 13.2% year over year or 12% on a foreign-exchange neutral basis. The company has projected earnings of $4.49 per share, suggesting growth of 55.9% year over year or 12% on a foreign-exchange neutral basis.
Zacks Rank #1 Netflix has an expected revenue and earnings growth rate of 14.5% and 41.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 30 days.
Royal Caribbean Cruises Ltd. RCL has been benefiting from strong cruising demand from new and loyal guests and robust booking trends. Also, strength in consumer spending onboard and pre-cruise purchases bodes well. RCL emphasized investing in a modern digital travel platform to streamline the vacation booking process for customers and expand wallet share. Also, RCL emphasized new innovative ships and onboard experiences to boost its offering and deliver superior yields and margins.
Zacks Rank #2 Royal Caribbean Cruises has an expected revenue and earnings growth rate of 14.7% and 47.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.5% over the past seven days.
Carnival Corp. & plc CCL has been benefiting from improved booking trends, courtesy of solid demand, bundled package offerings and increased advertising activities. CCL has secured bookings for nearly two-thirds of its business for 2024, with significantly higher prices. Also, CCL’s focus on fleet-optimization initiatives bodes well.
Zacks Rank #2 Carnival has an expected revenue and earnings growth rate of 13.8% and more than 100%, respectively, for the current year (ending November 2024). The Zacks Consensus Estimate for current-year earnings has improved 2% over the past seven days.
Ralph Lauren Corp. RL has benefited from robust demand and brand strength. RL has been on track with its Next Great Chapter: Accelerate plan. This is evident from RL’s impressive performance in third-quarter fiscal 2024. Both the metrics also improved year over year. A favorable product mix and lower freight costs contributed to the bottom line. For fiscal 2024, RL anticipates revenue growth (cc) in the low-single digits.
Zacks Rank #1 Ralph Lauren l has an expected revenue and earnings growth rate of 4.2% and 9.5%, respectively, for the current year (ending March 2025). The Zacks Consensus Estimate for current-year earnings has improved 5.7% over the past 30 days.
Wynn Resorts Ltd. WYNN has benefited from solid contributions from its Macau and Las Vegas Operations. Also, non-gaming revenue-boosting strategies and expansion efforts bode well for WYNN.
In the last reported quarter, WYNN launched its concession-related capital project in collaboration with Illuminarium and is focusing on planning other concession-related projects. Solid progress concerning the construction at Wynn Al Marjan Island is also encouraging.
Zacks Rank #2 Wynn Resorts has an expected revenue and earnings growth rate of 8.5% and 28.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.9% over the past 30 days.
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