Worst to first. It can happen quickly when it comes to US stocks.
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One of the hottest groups in the recent market rally is the cyclical consumer. Long a distant underperformer in 2022, the industry has bounced back to life in recent weeks on the back of some improving economic data, signs that inflation may have peaked and a more easing Fed.
Economically sensitive companies are finding favor again as investors seek out oversold names in hopes of a long-term recovery. From home furnishing stores and clothing retailers to hotels and restaurants, some big gains are coming from the S&P 500’s Oct. 13 bottom.
With many consumer durables arguably way oversold, the gains can only just begin. More positive economic releases and a less aggressive Fed rate hike campaign could turn the industry from a laggard to a leader in 2023.
These three stocks already have the wind at their backs to enter the new year.
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Will Peloton Stock be a 2023 winner?
Peloton Interactive, Inc. (NASDAQ: PTON) has doubled its 2022 low and seems to be gaining favor as a cover story. The indoor cycling company posted a seven-day profit streak in December despite a rather lackluster third-quarter earnings report. A larger-than-expected net loss reflected supply chain disruptions, higher material and freight costs, and a shift from home workouts to gym memberships.
Either way, sentiment around Pelton has turned bullish and the market senses the worst may be over for the former winner of the pandemic. Could mean a healthier economy next year more consumer confidence and spending on connected fitness equipment and subscriptions. Combined with an improvement in logistical constraints and cost inflation, Peloton’s earnings should theoretically be better.
Whether demand for interactive fitness picks up in a healthier economy remains to be seen. Without the pandemic, Peloton still has two powerful winds at its back: 1) global interest in health and wellness and 2) home working trends. Both support buying digital fitness experiences.
Still, the biggest key to a Peloton comeback in 2023 may lie in the effectiveness of recently formed partnerships with UnitedHealthCare, Dick’s Sporting Goods, Hilton and Amazon which could significantly increase Peloton’s audience.
Has Alibaba stock finally found a bottom?
Alibaba Group Holding Limited (NYSE: BABA) is up about 50% from this year’s low and is starting to see increased trading volume. It’s a combination that could point to a big 2023 for a stock widely regarded as a benchmark of Chinese consumers.
Of course, Alibaba’s disappointing plunge of $300 has a lot to do with it China’s strict Covid policy. Heading into its third calendar year, zero tolerance seems to have reached a tipping point with protests spreading across the country. The market hopes the fear will lead to an end to lockdown restrictions, allowing Chinese workers to earn and spend more money.
However, a possible recovery at Alibaba is about more than just the Chinese government. Recent financial results have been better. Revenue and profit in the fiscal second quarter were up year-on-year on the back of momentum in domestic and international trade activity and growing demand for cloud computing services.
The consensus forecast for fiscal year 2024 revenue implies growth of 11% and 6% in revenue and profit, respectively. Not the high numbers we had become accustomed to before the pandemic, but yes recovery has to start somewhere. And if you control about 80% of a Chinese e-commerce market supported by 1.4 billion consumers, that’s a recovery that will eventually be one of huge proportions.
Does Wynn Stock have more advantage?
Wynn Resorts Limited (NASDAQ: WYNN) entered December with a three-month winning streak coupled with good trading volume. The resort and casino operator got a Halloween boost from the news that Golden Nugget Casino owner Tilman Fertitta was taking a 6.1% stake in Wynn, and it hasn’t looked back since.
Wynn’s subsequent 31% gain in November 2022 was largely due to a strong third-quarter report that showed resilient consumer demand for experiences and entertainment despite broader macroeconomic pressures. The company’s new Encore Boston Harbor property delivered 10% higher revenues, and revenues in Las Vegas were up 14%. The return of conferences will attract even more people to the buildings next year.
An improving global economy in combination with declining inflation could translate into a sustainable recovery for Wynn and his colleagues in 2023. Easing of Covid restrictions in Macau and an end to the conflict between Russia and Ukraine would certainly be a boon for international business.
At home, Wynn’s most underrated asset is perhaps its growing online sports betting platform. The WynnBET app continues to gain popularity in the market and favorable legislative momentum from the state could lead to a much broader customer base in the coming years. Building momentum in brick-and-mortar casinos and digital assets, this stock looks like a win-win for 2023.
