Risk, reward and, as of late, a third “R,” recovery, is important for investors to weigh.
Two key questions right now are, which market sector will recover the fastest, and when will investors start to see that recovery? While there is no magic answer, investors may find it useful to consider certain leisure stocks within the consumer discretionary sector that consists of businesses that rise and fall with general economic conditions.
Within the stock market, there are 11 primary sectors, including the consumer discretionary sector. That sector includes leisure stocks, such as four companies specified below.
Products in the consumer discretionary sector run the gamut from washers and dryers to pools and hunting rifles. Though there is no doubt that this sector, along with all other major sectors, has been hurt by the new coronavirus, which causes the COVID-19 disease, there are stocks that offer long-term potential for investors.
Through the first quarter of 2020, the Fidelity MSCI Consumer Discretionary Index ETF (NYSE:FDIS) notched a 10-year growth rate of 206.59%, while the S&P 500 (SNP:^GSPC) rose a comparatively pedestrian 121.01%. As depicted in the chart below, FDIS is currently trending above the S&P 500 so far this year.
“If someone is attracted to the performance of a fund like FDIS, they need to remember that Amazon.com Inc. (NASDAQ:AMZN) has an enormous footprint in the sector, easily accounting for 33% of many portfolios in itself,” said Hilary Kramer, who hosts the “Millionaire Maker” radio program and leads the Value Authority advisory service. “With that in mind, I’d suggest a fourth ‘R,’ which is retail. You don’t want to overweight tired retail names but there’s still a lot of money to be made on this end of the consumer economy.”
One stock Kramer said she likes is Shopify Inc. (NYSE:SHOP), which gives independent stores an online presence. Many stores have spent weeks shut down, she added.
“Some will simply resume their physical sales, while others have at least partially pivoted to electronic commerce in order to keep cash flowing,” Kramer said. “SHOP is the backbone of that pivot.”
Investors who are willing to accept the risk may reap the rewards. Below are three other stocks in the leisure products arena that could have the potential to overcome the coronavirus crisis.
Vista Outdoor Inc. (NYSE:VSTO) is a company that designs, manufactures and markets consumer products for outdoor sports and recreation markets, both in the United States and internationally. The company has two main branches: Shooting Sports and Outdoor Products. According to NASDAQ, VSTO has an expected earnings growth rate of 35.7% for fiscal 2020, and a much higher expected earnings growth rate of 108.8%, for fiscal year 2021. Not only are projected estimates looking strong, but the VSTO share price has spiked 58.2%. In terms of performance outlook, VSTO has been a solid performer, it’s been up consistently in the short term, mid-term and long term. The company has trailing four-quarter positive earnings of 23.1% on average, and its earnings beat estimates in two of the last four quarters.
Twin River Worldwide Holdings, Inc. (NYSE:TRWH) operates multiple casino and racetrack properties in Mississippi, Colorado and Delaware. The company is expected to see earnings growth rates of 6.1% and 16.7% for 2020 and 2021, respectively. VSTO may pay off for investors who have a bit of patience. This stock pays a forward dividend of $0.40 and has a current yield of 2.84%.
Pool Corporation (NASDAQ:POOL) is the world’s largest wholesale distributor of swimming pool supplies, equipment and related products. Moreover, the company is a leading regional wholesale distributor of irrigation and landscape products. In the past few years, it has seen strong earnings growth, according to the Zacks Consensus Estimate. POOL is estimated to see growth of 0.3% in the current year and 10.8% in 2021. The company has an annualized dividend of $2.32 and earnings per share (EPS) of $6.36. Of the three picks, this is the first company to report its first-quarter 2020 results. The report showed that quarterly revenues increased 13.4% year over year. Following the announcement on April 23, the company’s shares gained 7.3% for the day.
As the quarantine continues to linger, uncertainty about the timing and pace of economic recovery remains. Keep in mind the three R’s: Risk, Reward and Recovery.
While the industrial sector may have an overall larger payout when times are normal, 2020 is a different time. Now is the time to consider a potentially overlooked area of the market. Not only are certain stocks, within the leisure products industry segment of the consumer discretionary sector, and holding their value well, Pool Holdings is exceeding expectations.
Looking back to how this market sector is faring against the S&P 500, both have been down for the year thus far but FDIS is outperforming. FDIS has a year-to-date decline of 4.10%, but a one-year return of 0.84%, while the S&P is down year-to-date by 9.56% but eking out a one-year return of 0.15%. Ultimately, this market sector may prove to be more recession-resistant than many investors may realize.
Emily Mirabelli is an editorial staffer with Eagle Financial Publications and a writer for www.stockinvestor.com.