Leisure stocks are likely to outperform this year as emboldened consumers relax. Here’s more on three economic trends that support this trend and 11 stocks to consider, according to five money managers I spoke with on this topic.
1. Consumer sentiment is on the rise. The University of Michigan’s consumer confidence index gained nearly 10 points to 79 in January. Sentiment has risen as the outlook for inflation and income improves. Consumer confidence has increased 29% since November. This is the largest two-month increase since 1991.
2. Jobs are plentiful: Nonfarm employment increased by 353,000 in January, and the tally for the previous two months was revised upward. The average hourly wage increased by 4.5% compared to the previous year. January’s job gain is even more impressive because payroll numbers typically shrink that month due to post-holiday layoffs, Bank of America says. The data confirms that there is no recession on the horizon. Plenty of jobs and rising wages make consumers more confident in leisure spending.
3. We are in the midst of a productivity boom: Productivity growth was 3.2% in the fourth quarter of 2023, following increases of 4.9% and 3.5% in the previous two quarters. For perspective, over the past twenty years growth has rarely been above 4%. Productivity growth supports wage increases and reduces pressure on companies to raise prices. Both improve spending power. The boom also stimulates economic growth. GDP growth is driven by a combination of labor force and productivity growth, both of which we have right now.
Here are 11 leisure stocks that will benefit from these trends:
Voyage
When people feel more confident about their budgets, they hit the road. And there’s still pent-up demand for post-Covid travel, says George Young, portfolio manager at Villere & Co. in New Orleans. That’s one reason why his wallet owns casino and hotel company Caesars Entertainment CZR,
The stock could also benefit from continued efforts to reduce its high debt levels.
Matt Wittmer and Abby Roach of Allspring Global Investments prefer Hilton Worldwide Holdings HLT,
as a game about spending on leisure travel. It is also one of the largest hotel builders at a time when there is a shortage of rooms. Hilton accounts for one in five rooms under construction, more than any other chain, Roach says. Meanwhile, independent operators continue to convert to the Hilton brand as it brings in more business.
Next, consider airlines like Ryanair Holdings RYAAY,
in Europe. The continent is in an economic crisis, which is hurting air travel. But it actually helps Ryanair. Because it has lower costs and a stronger balance sheet than rivals, Ryanair takes market share from struggling competitors during downturns, says Andrew Brown of Baillie Gifford, which specializes in finding companies that find ways to win throughout the economic cycle . The airline is still profitable even during this crisis and is using profits to buy more landing slots at airports. The European economy could provide a tailwind this year as the central bank has eased monetary conditions, predicts Ed Yardeni, of Yardeni Research.
Also, consider two names behind the scenes in travel. Brown to Baillie Gifford chooses Amadeus IT Group AMADY,
which provides software that manages reservation systems for airlines and hotels, and internal multimedia systems at hospitality chains. Young, at Villere & Co., owns Euronet Worldwide EEFT,
which has more than 50,000 ATMs in Europe, the Middle East, Asia and the United States. This makes it a travel game.
Computer and mobile games
Consumers spend less on games, but focus their money on the most popular titles. This favors the big game software companies with the big hits, namely Take-Two Interactive Software TTWO,
and Electronic Arts EA,
says Alec Boccanfuso of Fondi Gabelli.
Both will be releasing updates of their greatest hits soon. Take-Two’s Grand Theft Auto VI will likely release in 2025. But it’s not too early to position yourself in the stock market before that release. Grand Theft Auto hasn’t been updated since 2013, so there’s probably a lot of pent-up demand for a new version. Take-Two also has a major position in mobile gaming, thanks to its purchase of Zynga. Electronic Arts is expected to release an updated version of the Sports College Football series later this year. Now that college players can make money from the use of their images, the most popular college stars will be featured, another attraction.
The great outdoors
Like many retail chains that sell equipment used in outdoor activities such as camping, fishing and hunting, they had big sales last year to clear out excess inventory. They got the job done and are now ordering inventory again. “We are finally starting to see repopulation,” says Boccanfuso of Fondi Gabelli. “Retailers and manufacturers say the second half of this year will be better.” This would support the growth of outdoor supply manufacturers.
Boccanfuso favors Vista Outdoor VSTO,
which is selling its ammunition business to focus on products used in hiking, camping, cycling, golf and fishing. It owns some of the largest brands including Bell, Fox Racing and Giro in helmets, CamelBak in hydration packs, Bushnell and Foresight Sports in golf and Simms in fishing products. Another favorite is Johnson Outdoors JOUT,
which produces fishing products such as sonars, GPS systems and trolling motors. Among the retailers of outdoor items, Boccanfuso highlights Sportsmans Warehouse Holdings SPWH,
While the pandemic-era outdoor craze has subsided, interest in the space remains above pre-pandemic levels. Therefore, the demand for outdoor products remains high.
Pool supplies
For many people, free time means nothing more than relaxing in the backyard pool. As consumers spend more time poolside, this will help Pool POOL,
wholesaler of swimming pool maintenance products. This company also benefits from two trends, says Wittmer, at Allspring Global Investments. Many people are hitting the pool during the pandemic. And there’s an ongoing migration to the Southeast, where people are soaking in pools because of the warmer climate.
Michael Brush is a MarketWatch columnist. At the time of publication, he owned CZR. Brush suggested CZR and POOL in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks.
Moreover: George Soros’ fund bets on leisure travel in the United States, with new holdings in JetBlue, Spirit, Sun Country
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