Home furnishing buys

November 25, 2015 03:00 PM

The strength of the U.S. economy is the consumer. This should not be a surprise to anyone given that the unemployment rate is all the way down to 5.1%. Add to that the nearly $1,000 per year in energy savings for the average family, and consumers have more discretionary income than at any time since the onset of the Great Recession. This vibe is apparent in the Consumer Confidence report (now above 100) and the strength behind the +3.9% GDP growth on display in Q2. 

The U.S. consumer is not well-known for his ability to save money. Rather, extra cash burns a hole in his pocket, leading to increases in sales for many consumer-oriented industries. One current beneficiary is the home furnishings group where there are several stocks boasting Zacks Rank buy ratings. Below are three stocks for that sector that have great potential.     

American Woodmark (AMWD): In 2014 the company went through a rough stretch with three straight quarterly earnings misses. Now management has their strategy dialed, including five straight earning beats with an average positive surprise of 22.7%. However, no quarter was more impressive than the past one with a 37% beat, which got analysts buzzing about its growth potential. These impressive earnings estimate increases now have AMWD near the top of the list of Zacks #1 ranked stocks.  

Hooker Furniture (HOFT): AMWD was not the only furniture company wowing the market this past quarter. Hooker posted a 33% beat that thoroughly impressed investors as the stock leaped higher. There is a lot to like here, starting with a 26% expected year-over-year earnings growth. Also, the Zacks Value Score = B, which means that other investors have not fully priced these shares for exceptional growth potential. It also provides a 1.6% dividend, which will add to the total return potential.   

La-Z-Boy (LZB): The most well-known and probably lowest risk selection in the group, LZB had a very impressive quarter, boasting a 28% earnings surprise with growth on the rise. Just like HOFT it sports a Zacks Value Score of B. On top of that it is carrying a Zacks Momentum Score of A, which indicates other investors are noticing its potential and keeping the stock price aloft during the recent market volatility.   

As you scour the list of the top 10 industries you will find that most of them are consumer-oriented. And many of the stocks within those groups are U.S.-centric as those with large foreign, especially Asian, exposure are not doing as well. Be sure to overweight these groups in your portfolio. Then be sure to “couch” some money with these furniture stocks as well.

About the Author

Steve Reitmeister is the executive vice president at Zacks Investment Research at zacks.com. The cornerstone of the firm is the Zacks Rank stock rating system and its 26% average annual return since 1988. These results have been examined and attested to by the independent accounting firm Baker Tilley. @ZacksResearch