The economy seems to have entered a “golden” period of strong growth, a solid labor market, rising incomes, falling interest rates, and declining inflation. In this “best-of-all-worlds” environment, consumer discretionary stocks should thrive.
That’s because most consumers should feel confident that they will not lose their jobs, while their increasing incomes and easing inflation should make them more willing and able to spend more money on discretionary items.
Also contributing to the latter phenomenon will be rapidly falling interest rates, making buying new houses and cars much less expensive. As a result, many consumers will have much more money to spend on other items. Here are the three best discretionary stocks to buy for investors who want to exploit the “golden” economy.
MGM (MGM)
Hotel and casino owner MGM (NYSE:MGM) is getting a big boost from the strength of Las Vegas, and the city’s growth should only accelerate in the coming months.
In October, “Nevada’s gross gaming revenue of $1.3 billion was “the best October on record and the sixth-best month in history.” Meanwhile, the Las Vegas Strip’s revenue per available hotel room soared 13% in October versus the same period a year earlier.
And with the city hosting the Formula One auto race in November, the huge CES tech conference in January, and the Super Bowl in February, the revenue of Vegas’ casinos in general and MGM, in particular, are likely going to boom even more from November through February. It’s ‘s one of those consumer discretionary stocks to buy.
Meanwhile, MGM’s joint venture, BetMGM, expects to generate positive EBITDA in the second half of 2023, and the online betting firm says that it “has a 17% share of the total online sportsbook and iGaming market.”
I expect BetMGM to meaningfully raise MGM’s bottom line during the current quarter and in Q1 of 2024. Moreover, investment bank Jefferies has suggested that MGM could acquire the shares of BetMGM that it doesn’t already own.
If that occurs, BetMGM’s profits will tremendously boost MGM stock over the longer term, cementing MGM’s status as one of the best consumer discretionary stocks to buy.
lululemon (LULU)
lululemon (NASDAQ:LULU) stock has jumped 34% in the last three months. The rising popularity of yoga, along with the strong U.S. economy, should keep boosting the premium yoga apparel maker’s shares in the months and years ahead.
Goldman Sachs apparently agrees with that outlook, as the investment bank on Dec. 12 identified LULU stock as one of its top names to buy.
On Dec 7, LULU reported strong Q3 results, as its top line jumped 18% versus the same period a year earlier to $2.2 billion, while its income from operations, excluding certain items, soared 24% year-over-year to $436.3 million.
The firm’s overseas net sales soared an incredible 49%.
Celsius (CELH)
The popularity of premium caffeinated beverage maker Celsius Holdings (NASDAQ:CELH) is soaring as the firm’s unit sales jumped nearly 150% in the 12-week period that terminated at the end of November, according to Nielsen. CELH now has a 9.3% share of the energy drink market, so it has much room to grow going forward.
On Nov. 13, investment bank Jefferies started coverage of CELH with a $217 price target and a “Buy” rating. According to the bank, Celsius can expand at a compound annual growth rate of 26% between 2023 and 2027, driven partly by its distribution deal with Pepsi (NYSE:PEP).
Given Celsius’ high growth and relatively low market capitalization of $12.9 billion, I believe that it could become a takeover target in the not-too-distant future.
On the date of publication, Larry Ramer held a long position in MGM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.