Consumer spending looks likely to rebound this year amid a more supportive environment.
COVID-19 cases are falling as vaccines are distributed across the country, another economic relief package is on the way that will include another round of stimulus checks to most Americans and increased federal unemployment benefits, all as economic conditions are slowly improving.
With a light emerging at the end of the coronavirus tunnel, personal spending is expected to grow in 2021 at its fastest rate in over five years, according to a Federal Reserve Bank of New York survey.
And with a rush of spending, consumer discretionary stocks are likely to get a boost.
Laffer Tengler chief investment officer Nancy Tengler said this week that there are two stocks on this theme that her firm has added to its 12 Best Ideas list.
The first is Chipotle Mexican Grill (NYSE: CMG), which her firm bought last spring and has since added to its position after the burrito chain’s stock sold off following its most recent earnings report.
“We’ve been pounding the table on where the consumer and digitization cross over, so we’re grossly overweighted to consumer discretionary as a firm,” Tengler said.
While Chipotle’s fourth quarter earnings were lower than expected due in large part to expenses around the COVID-19 pandemic, the company saw its digital sales soar 177.2% in the quarter, accounting for 49% of sales.
The other stock Tengler is bullish on now is Disney (NYSE: DIS). While she noted the stock isn’t technically in the consumer discretionary space, Tengler argued Disney is a solid reopening play.
Disney reported on its fiscal first quarter after the bell on Thursday, posting strong growth in paid streaming subscribers—Disney+ now has nearly 95 million paid subscribers—and its first quarterly profit since early last year.
Chipotle and Disney “are two places we would play, along with some of the usual suspects like Amazon (NASDAQ: AMZN) or a Target (NYSE: TGT) that will benefit from consumers buying at home and also going into the store,” Tengler added.
Strategic Wealth Partners’ Mark Tepper says investors should keep their eyes on some of the biggest names in the space.
“All the usual suspects—the Walmarts (NYSE: WMT), Targets, Home Depots (NYSE: HD), Apples (NASDAQ: AAPL) of the world—they’re all going to get their fair share of the consumer’s wallet, but the biggest thing I’m hearing from clients, friends, colleagues is how badly everybody wants to travel,” Tepper said. “There’s a ton of pent-up travel demand.”
With that in mind, Tepper says there’s one airline stock in the travel sector that looks like a winner even with hotel and resort stocks already at or near pre-pandemic levels.
“You’ve got to do a little bit of homework to find the opportunity, and one name that I like right here is SkyWest (NASDAQ: SKYW),” Tepper said. “I think as vaccine distribution really hits its stride over the course of the next several months, I’d expect regional travel to rebound much faster than international. SkyWest… run[s] regional flights for the big three: United (NASDAQ: UAL), Delta (NYSE: DAL), American (NASDAQ: AAL). And when we look at the risk-reward profile of SkyWest, it’s much more attractive with them than it is with the mainline airlines. So, I think that would be our way to play this.”
Tengler is also positive on the travel space and is bullish on three stocks in the sector in particular.
“We also own… Southwest Airlines (NYSE: LUV), and we’ve been taking a really close look at Marriott,” Tengler said. “Marriott (NASDAQ: MAR) and Hilton (NYSE: HLT) have had a nice run, but we do think that people will begin to return to travel late this spring and early summer and those companies will benefit. In particular, Marriott has an interesting footprint that I think would benefit both domestically and internationally.”