7 Consumer Discretionary Picks on COVID-19 Vaccine Approval
Zacks Investment Research | Dec 14, 2020 07:16AM ET
Last week was disappointing for Wall Street as all the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — fell 0.6%, 1% and 0.7%, respectively. The massive spike in new COVID-19 cases in several states of the United States and lingering concerns about the approval of the second coronavirus-aid package were predominantly responsible for the stock market weakness.
However, market participants rejoiced on Friday evening after the FDA gave emergency authorization to the first coronavirus vaccine developed by Pfizer Inc. (NYSE:PFE) and BioNTech SE (NASDAQ:BNTX). Although nationwide vaccination will take some time, the approval of a vaccine will be a game-changer for 2021.
Importance of Coronavirus Vaccine Approval/h3
The FDA authorization of a COVID-19 vaccine this year means that the economy will reopen and gradually operate at the pre-pandemic level. The news will have a strong impact on the stock market.
Since the lockdowns imposed in March, the U.S. economy is operating at a significant sub-optimal level. Consequently, the cyclical or reopening stocks will get a big push from market participants aside from the growth-oriented technology and communications stocks.
Moreover, strong pent-up demand is likely to drive the U.S. economy in 2021. Personal savings rate is high in 2020 due to concerns over coronavirus-led economic uncertainties.
Consumers were restrained or restricted by the government to spend on those items that were closed during lockdowns. Reopening of the economy with the easing of the pandemic will significantly boost personal spending, the largest component of the U.S. GDP.
Importance of Consumer Discretionary Sector/h3
The consumer discretionary sector comprises businesses that sell goods and services, which are considered non-essential by consumers. These are the products that consumers can avoid without any major consequences to their well-being.
In fact, these goods are desirable only if the available income of an individual is sufficient to purchase them. This is in sharp contrast to consumer staples products that are absolutely necessary.
Notably, the U.S. economy was performing well buoyed by strong consumer spending before the outbreak of coronavirus. The consumer discretionary sector is likely to be a major gainer in stock markets as the U.S. economy will gradually return to the pre-pandemic level as more parts of it reopen.
Our Top Picks/h3
We have narrowed down our search to seven consumer discretionary stocks that have strong growth potential for 2021 and have witnessed solid earnings estimation revisions within the last 60 days. Each of our picks sports a Zacks Rank #1 (Strong Buy). You can see Zacks Investment Research
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