Consumer Confidence Rebounds in May: 5 Winners

U.S. consumer confidence improved in May, indicating that life is somewhat going back to normal. The U.S. economy almost came to a standstill in mid-March and saw its deepest contraction in the first quarter since the Great Recession.

However, the economy has finally started reopening and consumer confidence has shown improvement in May. So, it is likely that consumers will once again start spending after remaining locked in their homes for nearly two months. Consumer spending is important to U.S. economic well-being given that it makes for 70% of the country’s GDP.

U.S. Reopening With Renewed Vigor

Consumer confidence unexpectedly improved in May. The Conference Board said its consumer confidence index rose to 86.6 this month from a downwardly revised 85.7 in April. Although, the Conference Board survey’s present situation measure, based on consumers’ assessment of current business and labor market conditions, fell to a reading of 71.1 this month from 73.0 in April, the expectations index based on consumers’ short-term outlook for income, business and labor market conditions climbed to 96.9 from 94.3 in April.

As of May 26, all 50 states have reopened their economies to some extent. It is likely that people will start spending after being in home confinement for over two months and are gradually gaining confidence about the economy bouncing back.

The improved confidence reflected in the homebuilding sector also. The Commerce Department said new home sales increased 0.6% to a seasonally adjusted annual rate of 623,000 units last month. Also, confidence in the market for single-family, newly built homes rose 7 points in May to 37, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

Vaccine Hopes, Stimulus Boost Confidence

One of the major reasons for the unexpected improvement in consumer confidence in May is the massive $3 trillion rescue package passed by Congress. This is a shot in the arm for businesses and the unemployed during this time of crisis. Another round of stimulus that might be in the offing may have also helped consumers regain their lost confidence.

The Federal government is also contemplating The Heroes Act worth $1 trillion to help states and local governments with funds to pay key workers during the pandemic. Also, the CARES relief checks and widespread price discounting have helped rebuild confidence among people to start spending once again.

Hopes of a vaccine to cure COVID-19 sometime later this year or in 2021 is no doubt re-instilling confidence among people. Around 10 companies are in advanced stages of human trials with a few gearing up to begin clinical tests.

Our Choices

The gradual easing of restrictions followed by the opening of the economy along with widespread discounting, stimulus measures and hopes of a vaccine in the near term have helped consumers regain confidence. This is also a sign that the downturn could be close to bottoming. Given this scenario, the following consumer stocks could be ideal bets.

Reynolds Consumer Products Inc. REYN produces and sells branded and store-brand products, which include cooking products, waste & storage products and tableware. The company's flagship products include Reynolds Wrap(R) aluminum foil, Hefty(R) bags and Hefty(R) party cups.

The company’s expected earnings growth rate for the current year is 29.7%. The Zacks Consensus Estimate for current-year earnings has improved 8.7% over the past 30 days. Reynolds Consumer Productshas a Zacks Rank #2 (Buy).

BG Foods, Inc. BGS, along with its subsidiaries, manufactures, sells and distributes high quality, shelf stable, frozen food and household products across the United States, Canada and Puerto Rico.

The company’s expected earnings growth rate for the current year is 21.3%. The Zacks Consensus Estimate for current-year earnings has improved 19.2% over the past 30 days.  BG Foods sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. MED produces, distributes and sells weight loss and other health-related products through websites, multi-level marketing, telemarketing, franchised weight loss clinics and medical professionals.

The company’s expected earnings growth rate for the current year is 13.9%. The Zacks Consensus Estimate for current-year earnings has improved 25.7% over the past 30 days.  Medifast carries a Zacks Rank #1.

Grocery Outlet Holding Corp. GO offers a wide range of products. These include grocery, dairy and deli, produce, refrigerated and frozen, floral, beer and wine, general merchandise, and health and beauty care as well as fresh meat and seafood and natural, organic, specialty and healthy products.

The company’s expected earnings growth rate for the current year is 24.1%. The Zacks Consensus Estimate for current-year earnings has improved 8.9% over the past 30 days. Grocery Outletholds a Zacks Rank #2.

Kimberly-Clark Corporation KMB is principally engaged in the manufacture and marketing of a wide range of consumer products around the world. The company sells its products to supermarkets; mass merchandisers; drugstores; warehouse clubs; variety and department stores; and retail outlets.

The company’s expected earnings growth rate for the current year is 9.9%. The Zacks Consensus Estimate for current-year earnings has improved 4.4% over the past 30 days.  Kimberly-Clarkhas a Zacks Rank #2.

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