Leisure stocks are likely to outperform this year as emboldened consumers kick back and relax. Here’s more on three economic trends supporting this trend and 11 stocks to consider, according to five money managers I check in with on this theme.
1. Consumer sentiment is surging. The University of Michigan consumer sentiment index added almost 10 points to 79 in January. Sentiment rose on improved outlooks for inflation and income. Consumer sentiment has surged 29% since November. That’s the biggest two-month increase since 1991.
2. Jobs are plentiful: Nonfarm payroll employment increased by 353,000 in January, and the count for the prior two months was revised upwards. Average hourly earnings rose by 4.5% over the prior year. The January jobs increase is even more impressive because payroll numbers typically shrink that month due to post-holiday layoffs, says Bank of America. The data confirm there is no recession on the horizon. Plentiful jobs and wage hikes make consumers more confident about leisure spending.
3. We’re in the midst of a productivity boom: Productivity growth was a robust 3.2% in the fourth quarter of 2023, following 4.9% and 3.5% gains in the prior two quarters. For perspective, growth has rarely come in above 4% over the past 20 years. Productivity growth supports pay hikes, and it reduces pressure on companies to raise prices. Both improve spending power. The boom also boosts 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:
Travel
When people feel more confident about their budgets, they hit the road. And there is still pent-up demand for travel post-Covid, says George Young, a portfolio manager with Villere & Co. in New Orleans. This is one reason his portfolio owns casino and hotel company Caesars Entertainment
CZR.
The stock may also benefit from continued efforts to reduce its high debt levels.
Matt Wittmer and Abby Roach at Allspring Global Investments favor Hilton Worldwide Holdings
HLT
as a play on leisure travel spending. It’s also one of the major builders of hotels at a time when there’s 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 because it boosts business.
Next, consider airlines like Ryanair Holdings
RYAAY
in Europe. The continent is in an economic slump, which hurts air travel. But it actually helps Ryanair. Since it has lower costs and a stronger balance sheet than competitors, Ryanair takes market share from struggling competitors in downturns, says Andrew Brown at Baillie Gifford, who specializes in finding companies that find ways to win throughout the economic cycle. The airline is still profitable even during this slump, and it is using profits to buy more landing slots at airports. The European economy may provide a tailwind this year as the central bank there eased monetary conditions, predicts Ed Yardeni, of Yardeni Research.
Also, consider two behind-the-scenes names in travel. Brown at Baillie Gifford singles out Amadeus IT Group
AMADY
which provides software that runs booking systems for airlines and hotels, and in-house media 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 U.S. That makes it a travel play.
Computer and mobile games
Consumers are spending less on games, but targeting their dollars on the most popular titles. This favors the large gaming software companies with the big hits, namely Take-Two Interactive Software
TTWO
and Electronic Arts
EA,
says Alec Boccanfuso of Gabelli Funds.
Both will soon release updates of their biggest hits. Take-Two’s Grand Theft Auto VI will likely come out in 2025. But it’s not too early to position in the stock ahead of that release. Grand Theft Auto has not been refreshed since 2013 so there is probably a lot of pent-up demand for a new version. Take-Two also has a big position in mobile games, because of its purchase of Zynga. Electronic Arts should release an updated version of its Sports College Football series later this year. Now that college players are allowed to earn income from the use of their images it’ll feature popular college stars, another draw.
The great outdoors
Like a lot of retail chains that sell gear used in outdoor activities like camping, fishing and hunting ran big sales last year to blow out excess inventory. They got that job done, and now they’re ordering inventory again. “We are finally starting to see restocking,” says Boccanfuso at Gabelli Funds. “Retailers and manufacturers say the second half of this year will be better.” That would support growth at outdoor supply manufacturers.
Boccanfuso favors Vista Outdoor
VSTO
which is selling its ammunition business to focus on products used in hiking, camping, cycling, golfing and fishing. It owns some of the biggest brands including Bell, Fox Racing and Giro in helmets, CamelBak in hydration packs, Bushnell and Foresight Sports in golfing, and Simms in fishing products. Another favorite is Johnson Outdoors
JOUT
which makes fishing products like sonar, GPS systems and trolling motors. Among the retailers selling outdoor supplies, Boccanfuso singles out Sportsmans Warehouse Holdings
SPWH.
Though the pandemic-era outdoor activity craze died down, interest in the space remains above pre-pandemic levels. So, demand for outdoor products remains elevated.
Pool supplies
For many people, leisure means nothing more than lounging around the backyard pool. As consumers spend more time poolside, it will help Pool
POOL,
a wholesaler of pool maintenance products. This company also benefits from two trends, says Wittmer, at Allspring Global Investments. A lot of people put in pools during the pandemic. And there’s an ongoing migration to the Southeast, where people put in pools because of the warmer weather.
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned CZR. Brush has suggested CZR and POOL in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks.
More: George Soros’ fund bets on U.S. leisure travel, with fresh stakes in JetBlue, Spirit, Sun Country
Also read: The ‘cardboard-box’ recession is over. An out-of-the-box economic recovery is coming.
