Think Inflation Has Peaked? Then Consider Buying These 5 Consumer Discretionary Stocks The Consumer Price Index is expected to remain flat in May. Furthermore, the leading indicators of inflation are showing signs of easing. So, we think investors who believe inflation has...
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The Consumer Price Index is expected to remain flat in May. Furthermore, the leading indicators of inflation are showing signs of easing. So, we think investors who believe inflation has peaked could now look to add the stocks of consumer discretionary companies O'Reilly Automotive (ORLY), InterContinental Hotels (IHG), Darden Restaurants (DRI), Packaging Corporation of America (PKG), and MGM Resorts International (MGM) to their portfolios. Let's discuss these names.
The stock market closed with minor gains yesterday. The Dow Jones Industrial Average eked out a 16.08-point increase, while the S&P 500 and Nasdaq Composite gained 0.3% and 0.4%, respectively. Since the beginning of the year, the major market indexes have been experiencing substantial selling pressure on investors' concerns about interest rate hikes by the Federal Reserve to tame multi-decade-high inflation, supply disruptions arising from the Ukraine-Russia war, rising energy and commodity prices, and the potential for a recession. All major equity indexes are down more than 9% year-to-date.
Many analysts believe that inflation might have peaked, and they expect flat inflation data for May. The May jobs data reflected a slightly slower pace of hiring compared to April, when payrolls rose by 436,000. The U.S. consumer price index moderated to 8.3% in April after advancing 8.5% in March, the highest level in 40 years. But economists believe the May CPI will remain flat. ING's chief international economist James Knightley said that a second consecutive moderation in the annual rate should offer "hope that we have indeed passed the peak in inflation." Indicators such as the decline in semiconductor prices, the spot rate of shipping containers, and fertilizer prices in North America are showing signs that inflation may have peaked.
So, we think that investors who believe that inflation may have peaked could look now to add the stocks of fundamentally strong consumer discretionary companies O'Reilly Automotive, Inc. (ORLY), InterContinental Hotels Group PLC (IHG), Darden Restaurants, Inc. (DRI), Packaging Corporation of America (PKG), and MGM Resorts International (MGM) to their portfolios.
O'Reilly Automotive, Inc. (ORLY)
ORLY in Springfield, Mo., is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories. The company sells its products to both DIY and professional service provider customers. Its product line includes new and remanufactured complex automotive parts, such as alternators, starters, fuel pumps, and water pumps.
ORLY's sales have increased 6.6% year-over-year to $3.29 billion for the fiscal first quarter, ended March 31, 2022. The company's gross profit has increased 4.1% year-over-year to $1.70 billion. Also, its EPS came in at $7.17, representing a 1.5% increase1.5% year-over-year. In addition, its EBITDAR increased 6.7% year-over-year to $3.63 billion.
Analysts expect ORLY's EPS for its fiscal 2023 to increase 11.4% year-over-year to $36.74. Its revenue for the quarter ending June 30, 2022, is expected to increase 14.9% year-over-year to $3.71 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. And over the past year, the stock has gained 21.1% in price to close the last trading session at $637.80.
ORLY's strong fundamentals are reflected in its POWR Ratings. According to our proprietary rating system, it has an overall B rating, which translates to a Buy. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an A grade for Quality. Within the Auto Parts industry, it is ranked #16 of 70 stocks. To see the other ratings of ORLY for Growth, Value, Momentum, Stability, and Sentiment, click here.
InterContinental Hotels Group PLC (IHG)
Headquartered in Denham, U.K., IHG owns, manages, franchises, and leases hotels in the Americas, Europe, Asia, the Middle East, Africa, and Greater China. The company operates hotels under the Six Senses, Regent, InterContinental Hotels & Resorts, Vignette Collection, Kimpton Hotels & Restaurants, Hotel Indigo, EVEN Hotels, HUALUXE, Holiday Inn, Holiday Inn Express, Holiday Inn Club Vacations, Staybridge Suites, Crowne Plaza, and others.
On Feb. 28, 2022, IHG announced that Expedia Group had become its preferred redistributor of IHG's hotels and resort properties' wholesale rates through Expedia's Optimized Distribution Preferred program. IHG's Chief Commercial and Technology Officer George Turner said, "This arrangement will enable us to more seamlessly manage our wholesale distribution by providing cost savings, better control over our channel mix, and enhancements to our revenue management strategy, ultimately driving additional value for our owners and hotels."
IHG's total revenue increased 21.4% year-over-year to $2.90 billion for its fiscal year ended Dec. 31, 2021. The company's adjusted earnings increased 371.9% year-over-year to $269 million. Also, its EPS came in at 147¢, representing a 369.6% increase year-over-year.
For its fiscal 2022, IHG's EPS and revenue are expected to increase 74.4% and 30.9% respectively year-over-year to $2.56 and $1.82 billion. Over the past month, the stock has gained 2% in price to close the last trading session at $62.93.
IHG's POWR Ratings reflect this promising outlook. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B grade for Sentiment. It is ranked #4 of 22 stocks in the Travel – Hotels/Resorts industry. Click here to see the other ratings of IHG for Value, Momentum, Stability, and Quality.
Darden Restaurants, Inc. (DRI)
Orlando, Fla.-based DRI is a full-service restaurant that owns and operates full-service dining restaurants in the United States and Canada under the trade names Olive Garden, LongHorn Steakhouse, Cheddar's Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, Eddie V's Prime Seafood, and The Capital Burger.
For its fiscal third quarter, ended Feb. 27, 2022, DRI's total sales increased 41.3% year-over-year to $2.44 billion. The company's net earnings increased 91.9% year-over-year to $247 million. Also, its EPS came in at $1.93, representing a 96.9% increase year-over-year.
Analysts expect DRI's EPS and revenue for its fiscal year 2022 to increase 71.2% and 33%, respectively, year-over-year to $7.38 and $9.57 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. And over the past month, the stock has declined 3.2% in price to close the last trading session at $125.92.
DRI's POWR Ratings reflect solid prospects. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Quality. Within the B-rated Restaurants industry, it is ranked #11 of 44 stocks. To see the other ratings for DRI for Growth, Value, Momentum, Stability, and Sentiment, click here.
Packaging Corporation of America (PKG)
PKG in Lake Forest, Ill., is a producer of containerboard products and uncoated freesheet (UFS) paper in North America. The company's segments include Packaging, Paper, Corporate, and Other.
PKG's net sales have increased 18.2% year-over-year to $2.13 billion for the first quarter, ended March 31, 2022. The company's net income has increased 52.6% year-over-year to $254.20 million. Also, its EPS came in at $2.70, representing an increase of 54.2% year-over-year.
For the quarter ending June 30, 2022, PKG's EPS and revenue increased 31.8% and 19.9%, respectively, year-over-year to $2.86 and $2.14 billion. It surpassed the Street's EPS estimates in each of the trailing four quarters. The stock has gained 18.1% in price year-to-date to close the last trading session at $160.84.
PKG's strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Stability, Sentiment, and Quality. It is ranked #7 out of 21 stocks in the A-rated Industrial – Packaging industry. Click here to see the other ratings of PKG for Growth, Value, and Momentum.
Click here to check out our Industrial Sector Report for 2022
MGM Resorts International (MGM)
Las Vegas-based MGM, through its subsidiaries, owns and operates integrated casino, hotel, and entertainment resorts across the United States and in Macau. The company's segments include Las Vegas Strip Resorts, Regional Operations, and MGM China.
On May 17, 2022, MGM announced that the transaction with Blackstone to acquire The Cosmopolitan of Las Vegas had closed. MGM Resorts CEO and President Bill Hornbuckle said, "This is a big moment for our company and for the Las Vegas Strip. The Cosmopolitan of Las Vegas has already established itself as one of the Strip's premier resorts with an iconic brand, well-curated experiences, and a loyal customer base. We couldn't be more excited to bring them into our portfolio of world-class operations."
For its fiscal first quarter, ended March 31, 2022, MGM's revenues increased 73.2% year-over-year to $2.85 billion. The company's net loss attributable narrowed 94.5% year-over-year to $18.01 million. Also, its adjusted EPS came in at $0.01, compared to a $0.68 adjusted loss per share in the year-ago period. In addition, its operating income came in at $105.78 million, compared to a $246.69 million operating loss in the year-ago period.
Analysts expect MGM's EPS and revenue for the quarter ending Sept. 30, 2022, to increase 766.7% and 33.9% year-over-year to $0.26 and $3.32 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters. And over the past month, the stock has declined 7.8% in price to close the last trading session at $35.31.
MGM's POWR Ratings reflect solid prospects. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has a B grade for Value and Sentiment. Within the Entertainment – Casinos/Gambling industry, it is ranked #8 out of 29 stocks. To see the other ratings of MGM for Growth, Momentum, Stability, and Quality, click here.
ORLY shares were trading at $630.32 per share on Tuesday morning, down $7.48 (-1.17%). Year-to-date, ORLY has declined -10.75%, versus a -13.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master's degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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