Cooling Inflation Raises Rate Cut Hopes: 4 Solid Stocks to Buy

Inflation is finally showing signs of easing. The personal consumption expenditure (PCE) price index, the Fed's preferred inflation gauge, remained unchanged month over month in May after increasing 0.3% in April. 

Year over year, the PCE price index rose 2.6% in May after increasing 2.7% in April. Core PCE, which excludes the volatile food and energy prices, climbed 0.1% month over month in May after an upwardly revised 0.3% rise in April.

On a year-over-year basis, core PCE rose 2.6% in May after increasing 2.8% in April, May's increase was also the smallest since March 2021.

More importantly, goods prices fell 0.4% in May, the largest since November 2023. Also, prices of gasoline and other energy products decreased 3.4%.

The Federal Reserve has hiked interest rates by 525 basis points since March 2022. As a result, inflation declined sharply in 2023. However, it once again rose in the first quarter, igniting fears that the central bank could resume rate hikes.

The Federal Reserve has kept interest rates steady in its current range of 5.25-5.5% for the past 12 months. Also, Fed Chairman Jerome Powell, in his June post-FOMC meeting statement, said that the Fed sees only one rate cut this year.

However, positive inflation data has raised hopes among a large section of market participants that there could be two rate cuts of 25 basis points each in 2024.

Even a single 0.25 basis point rate cut is welcome, especially since many market players had earlier predicted that there would be no rate cuts this year.

Moreover, the most recent FOMC "dot plot" projects a 1% overall reduction in interest rates by 2025. According to this forecast, the Fed funds rate is anticipated to drop to 4.1% by the end of next year, which is encouraging for the economy as a whole.

Our Choices

Given this scenario, we have narrowed our search to four consumer discretionary stocks, such as OneSpaWorld Holdings OSW, AMC Entertainment Holdings, Inc. AMC, Wyndham Hotels & Resorts, Inc. WH and Crocs, Inc. CROX, which have strong potential for 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of the stocks has a Zacks Rank #1 (Strong Buy) or 2 (Buy).

OneSpaWorld Holdings is a provider and innovator in the fields of wellness, beauty, rejuvenation and transformation on cruise ships and land. OSW's service includes traditional and alternative massage, body and skincare treatment options, ayurvedic treatments, comprehensive hair and nail services, fitness, acupuncture, herbal medicine, pain management, and medi-spa.

OneSpaWorld Holdings' expected earnings growth rate for the current year is 28.6%. The Zacks Consensus Estimate for current-year earnings has improved 6.6% over the past 60 days. OSW carries a Zacks Rank #2 at present.

AMC Entertainment Holdings, Inc. operates as a theatrical exhibition company primarily in the United States and internationally. AMC owns or has interests in theatres and screens. AMC Entertainment Holdings, Inc. is based in Leawood, KS.

AMC Entertainment's expected earnings growth rate for the current year is 64.6%. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the past 60 days. AMC presently carries a Zacks Rank #2.

Wyndham Hotels & Resorts, Inc. operates a hotel and resort chain. WH operates primarily in Canada, Mexico, Colombia, Ecuador, Turkey, Germany, the UK, the Caribbean and Margarita Island in Venezuela. Wyndham Hotels and Resorts is headquartered in New Jersey.

Wyndham Hotels & Resorts' expected earnings growth rate for the current year is 6.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the past 60 days. WH currently has a Zacks Rank #2.

Crocs, Inc. is one of the leading footwear brands, with a focus on comfort and style. CROX offers a wide variety of footwear products, including sandals, wedges, flips and slides, that cater to people of all ages.

Crocs' expected earnings growth rate for the current year is 5.6%. The Zacks Consensus Estimate for current-year earnings has improved 2% over the past 60 days. CROX presently has a Zacks Rank #2.

To read this article on Zacks.com click here.