Consumer-Specific Sectors Poised for Growth in 2024
Goldman Sachs, in its 2024 Outlook report, predicts that consumer staples and discretionary sectors will experience upside in the coming year. With healthy consumer spending trends, a more normalized demand environment for services and goods, and advancements in technology to improve margins, the stage is set for growth in these sectors.
The report highlights that consumer staples (NYSEARCA:XLP) and discretionary (NYSEARCA:XLY) names are expected to see stock upside in 2024. Goldman Sachs expresses more bullishness regarding the potential for growth in the hardlines/broadlines universe than it has seen in the past two years.
However, the consumer staples sector faced challenges in 2023, entering the new year with superior valuation levels and the fundamental challenge of navigating a rapidly slowing top-line environment. Despite this, Goldman Sachs favors stocks with increasingly scarce growth, such as Constellation Brands Inc. (STZ), Monster Beverage Corp. (MNST), Philip Morris International Inc. (PM), Mondelez International Inc. (MDLZ), and Colgate-Palmolive Co. (CL).
In addition to these stocks, growth is also expected for Kellanova (K) and PepsiCo Inc. (PEP). On the other hand, there are concerns about volume and sales expectations for General Mills Inc. (GIS), Campbell Soup Co. (CPB), and The J. M. Smucker Co. (SJM), all of which are rated as sells.
Goldman Sachs analysts are more optimistic about the softlines and apparel sector for 2024. Despite near-term volatility, the report suggests that stronger consumer cash flow growth, healthier inventory levels, improved costing, and easier comparisons provide opportunities for stocks to outperform. Some buy-rated stocks in this category include Kontoor Brands Inc. (KTB), Lululemon Athletica (LULU), Nike Inc. (NKE), and PVH Corp. (PVH).
When it comes to groceries, the report highlights concerns about potential deflation in 2024 due to low industry growth and potential margin pressure from promotional activity. The backdrop suggests limited earnings growth across the group, making grocers with improving new store trends and greater opportunities to drive volume/mix more favorable. Sprouts Farmers Market Inc. (SFM) is a buy-rated stock in this category, while Grocery Outlet Holding Corp. (GO) is rated as a sell.
In the leisure sector, the report emphasizes a focus on catalyst-driven ideas and parks with incremental opportunities to drive continued growth in in-park spending in 2024. Goldman Sachs analysts favor SeaWorld Entertainment Inc. (SEAS) in this regard.
In the rental car sector, the report suggests a greater focus on company-specific growth, particularly for companies with opportunities for cost-cutting, pricing growth, and capital returns. Avis Budget Group Inc. (CAR) is a buy-rated stock in this sector according to Goldman Sachs.
As the year unfolds, the consumer-specific sectors are poised for growth in 2024. With favorable market conditions and specific stocks expected to outperform, investors may find opportunities in the consumer staples, discretionary, softlines and apparel, grocery, leisure, and rental car sectors.
