Leisure stocks are poised to outperform this year as emboldened consumers prepare to kick back and relax. Here are 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 soaring. The University of Michigan consumer sentiment index added almost 10 points in January, reaching 79. 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. Productivity growth is robust: 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:
1. 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. 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 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.
2. 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 and Electronic Arts, 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.
3. 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, 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, which makes fishing products like sonar, GPS systems and trolling motors. Among the retailers selling outdoor supplies, Boccanfuso singles out Sportsmans Warehouse Holdings.
4. 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, 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.
5. George Soros’ fund bets on U.S. leisure travel, with fresh stakes in JetBlue, Spirit, Sun Country: 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.
This article has been edited and condensed for clarity.
Priyam Gera