6 Top Stocks to Buy as Consumer Confidence Hits 6-Month High

Consumer confidence surged to a record level this month, defying economic headwinds such as the U.S.-China trade war and higher gasoline prices. Equity market volatility also seemed to have little impact on the American consumer, who remained optimistic even amid multiple macroeconomic concerns.

The reading was in line with the University of Michigan’s latest consumer sentiment numbers, which also reflected the bullishness of U.S. consumers. Critics argue that data for these surveys was captured before trade ties worsened early this month.

However, a strong jobs market remains the key catalyst for the rise in consumer confidence. Since hiring remains strong and the domestic economy remains resilient, it makes sense to pick consumer discretionary stocks at this time.

Consumers Remain Confident Among Multiple Headwinds

In May, the Conference Board’s Consumer Confidence Index increased from 129.2 in April to 134.1. This is significantly higher than the estimated level of 129.5 and the highest reading since November 2018. The Expectations Index which measures consumers’ opinion about business, income and labor market conditions over the next six months increased from 102.7 to 106.6.

The Present Situation Index , which gauges consumers’ opinion about present-day labor market and business conditions increased from 169 to 175.2, the highest level in 18 and a half years. The last time that the index breached this level was during December 2000.

Consumer confidence numbers were largely in line with the University of Michigan’s consumer sentiment data released earlier this month. The university’s consumer sentiment index increased 5.3% to 102.4, the highest level in 15 years. Of course, the reading was captured before the trade war worsened. But its direction remains largely valid, going by the fresh consumer confidence data.

Strong Labor Market Empowering American Consumer

The U.S. economy added 196,000 jobs in March, easily exceeding the consensus estimate of 184,000. Revisions to January and February’s gains took the first quarter’s average job gains to a solid 180,000. The rebound in hiring ensured that the unemployment rate for March was unchanged at a 50-year low of 3.8%. (Read: 5 Top Business Services Stocks to Buy as Job Gains Rebound)

A strong labor market continues to power the U.S. economy among a number of headwinds. Even though the recovery has extended over a record time period, companies are hiring at a steady pace. Crucially, jobs are being added despite a deceleration in U.S. growth and declining global economic prospects.  

According to Lynn Franco, Senior Director of Economic Indicators at The Conference Board, consumers think the economy will continue to grow at a robust pace in the near future. “Despite weak retail sales in April, these high levels of confidence suggest no significant pullback in consumer spending in the months ahead,” Franco added.

Our Choices

This month’s strong consumer confidence reading clearly indicates that the American consumer remains unruffled by economic headwinds. A lingering trade war and resultant stock market volatility have done little to dampen an upbeat consumer sentiment.

A strong labor market and continued hiring are driving consumer confidence upward. This is why it makes sense to invest in consumer discretionary stocks at this point. 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 good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rent-A-Center, Inc. RCII is the largest rent-to-own operator in the United States offering durable goods such as consumer electronics, appliances, computers, furniture and accessories.

Rent-A-Center has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 11.3% over the past 30 days.