Fri Dec 04 2015
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5 Consumer Stocks to Buy as Oil Tests $40


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Prices of U.S. crude fell below $ 40 on Wednesday, leading to declining benchmarks on lower energy stocks. It has been a routine phenomenon this year as oil continued to slump due to a variety of reasons. At present, there is a wide consensus that such a trend is likely to continue in the immediate future.

But there is a silver lining to the cloud on the oil sector. Lower oil prices mean that consumers in the U.S. only have to allocate a much smaller proportion of their income toward fuel costs. This is likely to benefit stocks from the retail and discretionary segments. Adding such stocks to your portfolio would be a smart move for you at this point.

Immediate Trigger

U.S. government data revealed a 10th straight weekly increase in U.S. oil supplies on Wednesday, leading to a fall in global oil prices. The federal government’s Energy Information Administration (EIA) report revealed that crude inventories increased by 1.2 million barrels for the week ending Nov 27, 2015. U.S. crude inventories are now at the highest level witnessed around this time of the year for the first time in 80 years.

As a result, U.S. crude oil prices settled below $ 40 for the first time since August, while Brent crude oil plummeted to an almost seven-year low. Prices of WTI crude oil and Brent crude oil dropped 4.8% and 4.6% to $ 39.94 a barrel and $ 42.49 per barrel, respectively.

Prices Likely to Trend Lower

The slide in the price of crude has been quite spectacular given that it was hovering above $ 100 around a year ago. Several factors suggest that the slump is likely to continue going forward. Oversupply has dogged the industry for a long time now. This is due to two factors, the U.S. shale boom and OPEC’s decision to keep output unchanged despite the slump in prices.

Lower consumption across the world is the reason for lower demand. Europe and Japan continue to struggle even as they make vigorous efforts to boost their flagging economies. But the biggest worry on this front is China. The world’s second largest economy may never again experience the pace of growth witnessed until recently, leading to demand falling even in the long term.

Our Choices

The consumer is expected to gain significantly from the slump in oil prices. With a lower proportion of income being spent on fuel costs, additional funds will be available for discretionary purchases.

This bodes well for companies from the retail and consumer discretionary segments with the holiday season well underway. It may be the right time to pick stocks from these sectors with strong growth potential. Our selection is also backed by a good Zacks Growth Score and Zacks Rank.

We narrowed down our choices with the help of our new style score system.

Our research shows that stocks with a Growth Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.

Carrols Restaurant Group, Inc. (TAST – Snapshot Report), operating through its subsidiaries, is a major franchisee for Burger King restaurants in the U.S.

Carrols Restaurant Group holds a Zacks Rank #1 (Strong Buy) and has a Growth Style Score of ‘A.’ The company has expected earnings growth of 54.8% for the current year. The earnings estimate for the current year has increased by 50% over the last 30 days.

American Woodmark Corp. (AMWD – Snapshot Report) is a manufacturer and distributor of kitchen cabinets and vanities for the new home construction and remodeling segments in the U.S.

American Woodmark holds a Zacks Rank #1 (Strong Buy) and has a Growth Style Score of ‘A.’ The company has expected earnings growth of 59.8% for the current year. The earnings estimate for the current year has increased by 20.7% over the last 30 days.

The Habit Restaurants, Inc. (HABT – Snapshot Report) is the operator of The Habit Burger Grill, a burger-centric fast casual restaurant chain.

Apart from a Zacks Rank #2 (Buy), Habit Restaurants has a Growth Style Score of ‘A.’ The company has expected earnings growth of 67.9% for the current year. The earnings estimate for the current year has increased by 6.2% over the last 30 days.

Townsquare Media, Inc. (TSQ – Snapshot Report) owns and operates radio, digital and live event properties in small to mid-sized markets across the U.S.

Townsquare Media holds a Zacks Rank #2 (Buy) and has a Growth Style Score of ‘A.’ The company’s expected earnings growth for the current year is more than 100%. The earnings estimate for the current year has increased by 5% over the last 30 days.

J. C. Penney Company, Inc. (JCP – Analyst Report) through its wholly-owned subsidiary J. C. Penney Corporation, Inc. offers merchandise and services to customers through its department stores, catalogs and website.

Apart from a Zacks Rank #2 (Buy), J. C. Penney has a Growth Style Score of ‘B’. The company has expected earnings growth of 54.4% for the current year. The earnings estimate for the current year has increased by 5.3% over the last 30 days.

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