Analysts have identified twelve consumer cyclical stocks that show promise for investment, despite a challenging economic landscape in the United States. Recent data from the US Commerce Department indicates a modest growth of 0.2% in retail sales for September, down from 0.6% in August. This slowdown comes as various sectors, including clothing and electronics, recorded declines of 0.7%, 0.5%, and 0.3% respectively.
Compounding these concerns, the Conference Board’s Consumer Confidence Index revealed a significant drop to 88.7 points in November, down 6.8 points from October. The Expectations Index for future economic conditions also fell to 63.2, indicating a less optimistic outlook among consumers.
In a recent appearance on Bloomberg Radio, Greg Daco, chief economist at EY, discussed the implications of a “K-shaped” economy, where economic recovery is uneven across different segments of the population. Daco highlighted that while wealthier consumers are benefiting from rising asset prices and increased spending, those with fewer financial resources are left behind. This divide could impact overall consumer spending if confidence in economic growth wanes.
Top Picks for Consumer Cyclical Stocks
For our analysis, we compiled a list of the best consumer cyclical stocks based on recent recommendations from analysts. We focused on stocks with a rating of “Buy” or higher, factoring in hedge fund sentiment from Insider Monkey’s database. Our methodology aims to identify stocks that hedge funds are favoring, as historical data suggests that mirroring these investment choices can yield strong market returns.
1. **Carvana Co. (NYSE:CVNA)**
– Hedge Fund Holders: 109
– Average Upside Potential: 12.00%
Carvana operates as an online car retailer, having sold 155,941 vehicles in the third quarter. Analyst ratings show a mix of seven “Strong Buy” and ten “Buy” recommendations, with a price target of $419.45. Notably, Wedbush recently upgraded Carvana to “Outperform,” highlighting the potential for significant growth in used-unit sales.
2. **The Home Depot, Inc. (NYSE:HD)**
– Hedge Fund Holders: 104
– Average Upside Potential: 13.01%
As a leading home improvement retailer, The Home Depot reported revenues of $41.35 billion in its fiscal third quarter. Despite missing earnings estimates, the company has a balanced outlook with 19 out of 37 analysts rating it a “Buy.”
3. **AutoZone, Inc. (NYSE:AZO)**
– Hedge Fund Holders: 60
– Average Upside Potential: 15.8%
AutoZone is a major player in the aftermarket auto parts industry, with a strong DIY segment. Following an upgrade by Goldman Sachs, the stock has a target price of $4,579.13, bolstered by recent growth in same-store sales.
4. **Group 1 Automotive, Inc. (NYSE:GPI)**
– Hedge Fund Holders: 40
– Average Upside Potential: 16.97%
This automotive retailer has received mixed ratings, with recent coverage from Barclays setting a target price of $510 amid concerns over luxury car sales.
5. **Domino’s Pizza, Inc. (NASDAQ:DPZ)**
– Hedge Fund Holders: 52
– Average Upside Potential: 18.35%
Despite facing a challenging market, Domino’s remains confident about gaining market share, with a price target of $496.65.
6. **Lithia Motors, Inc. (NYSE:LAD)**
– Hedge Fund Holders: 45
– Average Upside Potential: 23.61%
Following a recent acquisition, Lithia Motors is positioned for growth, with analysts maintaining a positive outlook and a price target of $394.13.
7. **Ferrari N.V. (NYSE:RACE)**
– Hedge Fund Holders: 46
– Average Upside Potential: 23.74%
Despite a recent dip in share value, Ferrari’s strong brand and pricing power support its growth potential, with a target price of $484.92.
8. **Royal Caribbean Cruises Ltd. (NYSE:RCL)**
– Hedge Fund Holders: 47
– Average Upside Potential: 26.23%
Analysts have noted a recent softening in cruise prices but continue to rate Royal Caribbean positively, with a target price of $336.08.
9. **Booking Holdings Inc. (NASDAQ:BKNG)**
– Hedge Fund Holders: 95
– Average Upside Potential: 26.30%
Booking Holdings is experiencing a beneficial shift as it adapts to AI-driven competition while maintaining strong relationships with hospitality providers.
10. **Amazon.com, Inc. (NASDAQ:AMZN)**
– Hedge Fund Holders: 332
– Average Upside Potential: 26.33%
The retail giant has shown resilience, with a target price of $294.65, supported by growth in its AWS cloud services.
11. **MercadoLibre, Inc. (NASDAQ:MELI)**
– Hedge Fund Holders: 109
– Average Upside Potential: 37.43%
The leading Latin American eCommerce platform has a strong growth trajectory, with a price target of $2,847.
12. **Flutter Entertainment plc (NYSE:FLUT)**
– Hedge Fund Holders: 95
– Average Upside Potential: 47.31%
As a leader in online betting, Flutter Entertainment faces regulatory challenges but remains rated positively with a target price of $307.59.
These stocks reflect a diverse range of sectors within the consumer cyclical category. While economic indicators present challenges, the potential for growth remains, particularly among companies that adapt to changing market conditions. Investors are encouraged to consider these recommendations as part of their diversified portfolio strategies.
