5 Discretionary Stocks to Buy on Solid Rebound in Consumer Confidence

Consumer confidence surged in May, jumping to 98 from 85.7 in April, driven by easing trade tensions and a rebound in markets; the expectations index also saw a significant increase. The improved sentiment has led to positive revisions in earnings estimates for consumer discretionary stocks, including Netflix (NFLX), JAKKS Pacific (JAKK), Kontoor Brands (KTB), Fox Corporation (FOX), and Charter Communications (CHTR), making them potentially attractive investments.

Analysis

U.S. consumer confidence demonstrated a significant resurgence in May, with the Conference Board's index jumping 12.3 points to 98, substantially exceeding the consensus forecast of 87 and marking a reversal after five consecutive months of decline. This uptick, underpinned by a 4.8-point rise in the present situation index to 135.9 and a notable 17.4-point increase in the expectations index to 72.8, is largely attributed to easing U.S.-China trade tensions, including a temporary halt on tariffs, which has also contributed to a market rebound. Further positive catalysts include a federal trade court ruling that deemed certain tariffs "illegal" and an improved labor market outlook, with 19.2% of respondents anticipating more job availability in the coming six months. Additionally, 44% of investors now project higher stock values over the next 12 years, an increase of 6.4% from April, and markets are pricing in two 25 basis point interest rate cuts from September amid signs of cooling inflation. This improved macroeconomic backdrop and consumer sentiment create a favorable outlook for consumer discretionary stocks, evidenced by positive earnings estimate revisions for several companies. Specifically, Fox Corporation (FOX) and JAKKS Pacific (JAKK) carry a Zacks Rank #1 (Strong Buy), with projected current-year earnings growth of 32.36% and 12.7% respectively, and consensus earnings estimates improving by 2% and 3.1% over the past 60 days. Netflix (NFLX), Kontoor Brands (KTB), and Charter Communications (CHTR) hold a Zacks Rank #2 (Buy), with expected earnings growth rates of 27.7%, 9.6%, and 13.2% respectively, and corresponding earnings estimate improvements of 3%, 2.9%, and 4.5%. Charter Communications reported serving approximately 30.1 million customers as of December 31, 2024. The strongly positive overall sentiment score of 0.75 and high per-ticker sentiment for these entities (FOX: 0.9, JAKK: 0.85, NFLX: 0.8, CHTR: 0.75, KTB: 0.7) further support this optimistic view.

Key Decisions for Investors

• Given the substantial rebound in consumer confidence to 98 in May, fueled by abating trade concerns and expectations of monetary easing, investors should consider increasing allocation towards the consumer discretionary sector.
• Prioritize investments in companies demonstrating strong fundamentals and positive earnings revisions, such as Fox Corporation (FOX) and JAKKS Pacific (JAKK), which boast Zacks #1 Ranks and significant expected earnings growth of 32.36% and 12.7% respectively.
• Evaluate opportunities in Netflix (NFLX), Kontoor Brands (KTB), and Charter Communications (CHTR), all holding Zacks #2 Ranks with solid earnings growth outlooks and recent upward estimate revisions, while remaining attentive to specific industry dynamics and competitive pressures.
• Closely monitor key macroeconomic indicators, particularly inflation data, Federal Reserve policy signals, and developments in international trade relations, as these factors will critically influence consumer sentiment and the performance of discretionary investments.