Banking, finance, and taxes

4 Stocks to Buy That Will Benefit From Strong 2018 Consumer Spending

Lee Jackson

Published: March 1, 2018 9:25 am

Last Updated: January 12, 2020 2:53 am

It has been going on ever since the election: small business optimism has become contagious, and the economy is starting to hit on all cylinders. Despite the prospect of probably three interest rate hikes this year, most economists remain very positive, and most expect first-quarter gross domestic product to jump back over the 3% level, with some estimating much higher.

In a new research report, Deutsche Bank, like others on Wall Street, is positive on the potential for the economy and the U.S. consumer in 2018. With multiple economic indicators looking positive, there is every reason to believe the firm will be right, and the report explained why:

Consumer data remains robust and is supported by a continued benign macro environment and stimulus from the tax reform. Although leverage for lower income/subprime households is a bit elevated, we remain optimistic about consumer income and the health of US consumer with jobless claims continuing to hover near historic lows, consumer confidence at 17-year highs, and delinquency expectations and bankruptcy trends implying modest consumer credit normalization.

They see four companies as big beneficiaries of the improvement in consumer spending, and all are rated Buy at Deutsche Bank.

American Express

This stock has bounced back nicely from the intense selling early in February. American Express Co. (NYSE: AXP) provides charge and credit payment card products and travel-related services to consumers and businesses worldwide.

The company’s products and services include charge and credit card products; payments and expense management products and services; consumer and business travel services; stored value products, such as traveler’s checks and other prepaid products; and network services.

Shareholders are paid a 1.44% dividend. The Deutsche Bank price target for the shares is $118, and the Wall Street consensus target is just $108.20. The stock closed Wednesday at $97.51 a share.

ADS

This company has hit our insider buying screens in a big way this year, as ValueAct Holdings has purchased a substantial number of shares in Alliance Data Systems Corp. (NYSE: ADS). The company is a provider of data-driven marketing and loyalty solutions serving consumer-based businesses in a range of industries.

The company offers a portfolio of integrated outsourced marketing solutions, including customer loyalty programs, database marketing services, end-to-end marketing services, analytics and creative services, direct marketing services and private label and co-brand retail credit card programs.

ADS operates through three segments.

• LoyaltyOne provides coalition and short-term loyalty programs through the company’s Canadian AIR MILES Reward Program and Brand Loyalty.
• Epsilon provides end-to-end, integrated marketing solutions.
• Card Services provides risk management solutions, account origination, funding, transaction processing, customer care, collections and marketing services for the company’s private label and co-brand retail credit card programs.

The company’s tax rate is expected to drop from 33.9%, which analysts think can raise per-share earnings almost 16%.

Shareholders receive a 0.95% dividend. Deutsche Bank has a $298 price objective, and the consensus target price is $287.73. Shares closed Wednesday at $240.96.

Discover Financial Services

This top financial stock has very wide brand recognition. Discover Financial Services Inc. (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company issues the Discover card, America’s cash rewards pioneer, and offers private student loans, personal loans, home equity loans, checking and savings accounts and certificates of deposit through its direct banking business.

The company also operates the Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation’s leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in more than 185 countries and territories.

Shareholders receive a 1.78% dividend. The $92 Deutsche Bank price objective compares with the consensus price target of $89.96. Shares closed at $78.83 on Wednesday.

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Synchrony Financial

This company may be the perfect value financial for a growth portfolio. Synchrony Financial (NYSE: SYF) is one of the nation’s premier consumer financial services companies. It is the self-described largest provider of private label credit cards in the United States, based on purchase volume and receivables.

Synchrony Financial provides a wide range of credit products through programs established with a diverse group of national and regional retailers, local merchants, manufacturers, buying groups, industry associations and health care service providers to help generate growth for the company’s partners and offer financial flexibility.

Top analysts have noted in the past that private label cards are gaining share, and the research suggests a continuation of that trend. They also note that retailers continue to push back on rate, and private label cards offer more of a symbiotic relationship for retailers.

Shareholders receive a 1.6% dividend. The Deutsche Bank price target is $46. The consensus target is $45.58, and shares closed Wednesday at $36.39.

These four top financial companies look to benefit from an improving economy and consumer spending. Their stocks make good sense for growth accounts looking to add financials.