5 Stocks To Buy On Robust Consumer Spending

Fresh GDP data released last Friday revealed that the economy had expanded at a slower rate in the second quarter than earlier estimated. Estimates for growth during this period are currently in line with the final figures recorded for the first quarter and have led to concerns about the health of the economy.

However, one bright spot was visible amid the gloom. Consumer spending grew faster than earlier estimates, indicating that the largest contributor to GDP remained in fine fettle. Taken together with other economic indicators released recently, this has led to optimism about economic growth in the current quarter. Picking consumer related stocks looks like a prudent option at this point.

Growth Dips, Consumption Spikes

According to the Department of Commerce’s second estimate, GDP grew at 1.1% in the second quarter, lower than the initial estimate of 1.2%. The decline in the pace of growth was primarily attributable to a higher-than-expected fall in business inventories. This metric declined by $12.4 billion during the last quarter on an annualized basis, shaving off 1.26 percentage points from GDP. This was the largest such decline in a period in excess of two years.

Meanwhile, the largest contributor to U.S. GDP, consumer spending, experienced a significant upward revision. Household consumption increased on an annualized basis of 4.4%, higher than the rate of 4.2% that was earlier estimated. This is the fastest pace of expansion the metric has experienced since the last quarter of 2014. Consumer expenditure contributed 2.94 percentage points to GDP growth, the highest in more than a year.

Third-Quarter Rebound Likely

Despite the fact that second-quarter GDP has been revised downward, the outlook for the economy remains strong. Speaking at Jackson Hole, the Fed Chair sounded optimistic about economic growth, inflation and the labor market. Similar sentiments were expressed by other key Fed officials earlier.

In fact, there is enough evidence to suggest that a strong rebound is likely in the third quarter. Data released recently reveals that the trade deficit has declined considerably even as residential construction increased sharply in July. Additionally, durable orders increased substantially last month, indicating that the drought in business expenditure might be receding.

Also, the labor market continues to exhibit a high degree of strength and this should continue to boost consumer expenditure. Meanwhile, the reduction in business inventories, the primary culprit when it comes to a fall in estimated GDP, is expected to give a boost to the industry as it will result in a buildup of fresh inventories. Presently, the Atlanta Fed is projecting third-quarter GDP at 3.4%.

Our Choices

Despite the fall in estimated GDP growth, there are enough signs which indicate that a revival has already begun in the current quarter. A spurt in consumer spending is probably primarily responsible for this rebound, as can be seen from the strong trend that is already visible.

Picking consumer stocks would make for a smart choice at this time. At the same time, it is important to pick winning stocks.

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 based on a good Zacks Rank and VGM score.

Central Garden & Pet Company (NASDAQ:CENT) is a leading producer and marketer of premium and value-oriented products focused on the lawn & garden and pet supplies markets in the U.S.

Central Garden & Pet has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 61.7% for the current year. Its earnings estimate for the current year has improved by 5.6% over the last 30 days.

Outerwall Inc (NASDAQ:OUTR) provides automated retail solutions primarily in the U.S., Canada, Puerto Rico, Ireland, and the United Kingdom.

Outerwall has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 7.82, lower than the industry average of 12.79. Its earnings estimate for the current year has improved by 4.2% over the last 30 days.

SodaStream International Ltd. (NASDAQ:SODA) is a developer, manufacturer, and seller of home beverage carbonation systems.

SodaStream has a Zacks Rank #1 and a VGM Score of B. Its earnings estimate for the current year has improved by 11.3% over the last 30 days.

Summer Infant, Inc. (NASDAQ:SUMR) is a designer, marketer and distributor of branded durable juvenile health, safety and wellness products, which are sold principally to large U.S. retailers.

Summer Infant has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 35.3% over the last 30 days.

Nutrisystem, Inc. (NASDAQ:NTRI) is a leading provider of weight management products and services.

Nutri/system has a Zacks Rank #2 (Buy) and a VGM Score of B. The company has expected earnings growth of 30.9% for the current year. Its earnings estimate for the current year has improved by 1.6% over the last 30 days.