Wall Street Analyst Says These 2 Consumer Stocks Are Top Picks for 2024

Consumer spending has long been the driver of the US economy. High inflation and consequent high interest rates in recent years have had a damping effect – but inflation is slowing, and the common wisdom expects to see rate cuts later this year. While consumers are still under some stress, the prospect of price stabilization and cheaper credit is positive for consumers, as are the current low rate of unemployment and recent improvements in real wage growth.

This makes the present a propitious time to start considering consumer stocks, in advance of a potential surge in retail spending. While increases in retail spending have been modest recently, the prospect of rate cuts heading into 2025 should accelerate consumers’ spending plans. A lower cost of credit should provide some relief from the stressors – and give consumers some renewed budgeting flexibility.

David Bellinger, from Mizuho Securities, has been watching the situation carefully, and explains what sort of consumer-oriented companies should benefit from current conditions: ‘Our analysis seeks to cut across channels focusing on the balance between reaching the always on, connected consumer through new and exploratory channels, and the evolving operations of legacy store-based models. The era of near zero interest rates is behind us, and our coverage is built around companies that have scaled and are focused on driving profitable growth.’

With this as backdrop, we’ve looked up the details on two of Bellinger’s consumer stock favorites, ones the analyst considers Top Picks right now. Using the TipRanks platform, we can also see how the rest of the Street sees the year panning out for these names.

Mister Car Wash (MCW)

The first stock we’ll look at is Mister Car Wash, which bills itself as the largest car wash operator on the North American scene. Americans have long loved their cars, and like to keep them clean; Mister Car Wash has used that truth as the base for a nationwide network of 450 car wash locations. The company has built its brand on a commitment to quality and friendliness, and maintains that through its personnel recruitment and training programs.

Mister Car Wash is headquartered in Tucson, in sun-drenched Arizona, and operates its business through a subscription model. The company aims to provide every customer with a vehicle that is clean, shiny, and well-dried, every time, relying on a combination of professional staff and advanced technology for consistent results. A car wash may seem simple, looking at the results, but the facilities require specialized machinery, brushes, blowers, and chemicals, making training and maintenance important priorities for management. In addition, the company has made a commitment to operating with responsible resource management, environmental, and waste-water disposal practices.

On the financial side, the company last reported results for 4Q23. The quarterly top line came to $230.1 million, up 7.4% year-over-year – although it just skated under the forecast by $320,000. At the bottom line, Mister Car Wash generated 7 cents per share in non-GAAP EPS, based on $24 million in net income. The EPS figure was in-line with expectations. Looking at growth, the company opened 35 new locations in 2023, and saw its Unlimited Wash Club membership increase by 10.3%.

When analyst Bellinger looks at this stock, he sees a company with a clear mission and room to keep growing, a stock worth ‘Top Pick’ status. Bellinger writes of it, “We view Mister Car Wash as one of the more compelling multi-year growth opportunities within our group. MCW is well on its way to regaining momentum after fighting through an increasingly competitive sector backdrop, and largely avoiding the ‘growth at all costs’ playbook of peers. We are attracted to the high revenue visibility from 2M+ monthly paying members (>70% of revenues), low variable costs attached to the express car wash model, and potential to ultimately double its store footprint. The implementation of a super premium Titanium 360° wash package serves as a coming catalyst enabling comp and margin acceleration ahead… MCW is our Top Small Cap Pick.”

Quantifying his stance, Bellinger initiates his coverage of MCW with a Buy rating and an $11 price target that shows his confidence in a 45% upside potential for the coming 12 months. (To watch Bellinger’s track record, click here)

Overall, Mister Car Wash gets a Moderate Buy consensus rating from, based on 10 recent reviews that include 5 to Buy, 4 to Hold, and 1 to Sell. The stock is trading for $7.58, and its $9.67 average target price implies it will gain 27.5% in the year ahead. (See MCW stock forecast)

Wayfair, Inc. (W)

Next on our list is Wayfair, the $12-billion-per-year online retailer of furniture and other home goods and soft lines. The company is based out of Boston, Massachusetts, and is a leader in the online home goods niche around the world, with active business offices, warehouses, and logistic operations across the US, in Canada, in China, and in the UK, Ireland, and Germany.

Wayfair’s customer-facing retail operation is conducted through the company’s family of e-commerce websites, six in all, including Wayfair and Wayfair Professional, AllModern, Birch Lane, Joss & Main, and Perigold. Under these names, Wayfair sells a wide and varied line-up of products, everything from custom cabinets and other home improvements to lighting systems, rugs and floor coverings, large and small appliances, home decorations, outdoor furnishings and decorations, even pet supplies and accessories.

On the business side, Wayfair increased its active customer base in 4Q23 to 22.4 million, for a year-over-year gain of 1.4%. Orders per customer were also up in the quarter, coming in at 1.84, as opposed to the 1.81 result in 4Q22. The company delivered 11.3 million orders in 4Q23, for a y/y increase of 2.7%.

All of this added up to quarterly revenues of $3.1 billion, roughly flat year-over-year and just slightly (by $10 million) below the forecast. At the bottom line, Wayfair saw a net loss in the quarter, of 11 cents per share in non-GAAP measures. This EPS loss was 4 cents narrower than had been expected.

Wayfair finished Q4 with a sound liquidity position. The company saw $158 million in net cash from operating activities, and a non-GAAP free cash flow of $62 million. The company’s total liquidity as of December 31, 2023 came to $1.9 billion. This included $1.4 billion in cash and other liquid assets, as well as the undrawn available balance on the revolving credit facility.

Turning once again to David Bellinger, we find the Mizuho analyst is upbeat on Wayfair, particularly its ability to streamline its operations. He writes, “W continues to hold its own in a still-challenged home furnishings space and is extremely well-positioned as macro headwinds ease, in our view. Early signs are emerging for a return to sustainable positive order growth, further share gains, and some reversal in housing trends. Management has simultaneously engineered a sharp turn within the core business, eliminating nearly $2B in annualized costs and rapidly approaching mid-single digit EBITDA margin profitability. All in, we believe investors are still under-appreciating a more operationally efficient Wayfair model aligned with balancing profitability and still respectable top-line growth. W is our Top Pick within our Consumer Internet coverage.”

These comments back up Bellinger’s Buy rating here, while his $72 price target implies a ~14% share increase on the one-year horizon.

Shares in Wayfair are currently trading for $63.33, and their $65.77 average price target suggests a modest 4% appreciation in the next 12 months. The analyst consensus rating, of Moderate Buy, is based on 26 recent recommendations that split 14-12 between Buys and Holds. (See Wayfair stock forecast)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.