Today’s Economy Has Made This Week’s Pick Much Stronger

There is no denying the fact that the Consumer Discretionary sector, which tends to be sensitive to economic swings, had its fair share of winners and losers when COVID-19 first took the world by storm in 2020…

In some retail categories, spending plunged 90% at the peak of pandemic-related lockdowns intended to slow down the spread of the virus. This is always a big deal because the sector accounts for roughly one-third of the U.S. economy.

If you need a quick refresher, this industry is all about non-essential goods and services.

Items such as expensive bottles of wine, high-end automobiles and new home furnishing are all considered to be part of the Consumer Discretionary sector. But a good way to figure out which companies fall into this group is by looking at your own spending patterns. If you purchased a product because you wanted it but could bypass it if you didn’t have the available funds, then it fits into the sector.

So if consumers aren’t out buying, it’s going to negatively impact some things…

But with much of the economy now reopened, the Consumer Discretionary Select Sector SPDR Fund (XLY), an ETF that tracks consumer stocks in the S&P 500, and beaten-down companies in it have regained most if not all of their losses.

The XLY dropped roughly 35% as the first wave of the pandemic swept across most countries in March 2020.

Despite the given setback from social distancing and shutdowns, stimulus efforts and stay-at-home orders triggered a surge in home improvement stores like Home Depot and Lowe’s, along with e-commerce sales.

The XLY then gained about 140% by the beginning of November 2021.

Since then, the XLY has retraced some of those gains to come back down to the $184 level. Still and all the entire sector has proven to be great to target when the economy is growing and consumers are willing to put the extra cash in their pockets to good use.

But price surges on just about everything, particularly at the gas pump, could push people to become a bit choosier on where they decide to spend it…

Which means the majority of companies might be forced to slash prices if consumers start to trim back on spending.

Now, there are no major signs of this just yet with retail sales rising 0.5% last month amid high inflation levels. However, the businesses with the most competitive offerings wouldn’t be forced to lower them nearly as much if so.

An atmosphere like this makes businesses with unwavering pricing powers excellent ones to invest in…

Which leads us to Ross Stores Inc. (ROST), the high-quality stock I recommend selling a put on this week.

This popular discount retailer, operating under the brand name Ross Dress for Less, offers first-quality, in-season designer apparel, accessories, footwear and home fashions for all different age groups at savings up to 60% off department store prices.

It’s the largest off-price department store in the U.S. with 1,649 locations.

If truth be told, Ross Dress for Less is not everyone’s favorite place to shop because it is cheap, but because people like to be frugal.

We often look for the value in comparison to price.

I mean, the less money we spend on products for personal use (think home maintenance, hygiene and entertainment items), the more we get to keep for our savings accounts and investments.

Speaking of financial situations, Ross reported fourth-quarter earnings early last month that were better than Wall Street expected. The discounter said it earned $1.04 a share on revenue of $5.02 billion — that’s about a 18% jump from the previous quarter. It also raised its dividend 9% to $0.31 per share.

Even though Ross isn’t expected to give another earnings announcement until the end of May, its shares have experienced a pop the past several trading sessions…

Shares of the discount retailer have been some of the best performing lately as the stock has jumped over 16% in the past three weeks.

The vast majority of that is a direct result from the team at Credit Suisse, a global investment bank and financial services company based in Switzerland, upping its price target from the $118 level to $125…

Which leads investors to believe there is still an upside of some 20% to be had.

The stock currently has 10 strong buy recommendations and is on an ITV signal, providing another income opportunity.

ITV, the red line at the bottom of the chart below, gave the signal when it fell below its 20-week moving average (blue line), signaling that volatility is bottoming and we can expect shares to move higher.

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