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New jobs are churning into these recovering stocks

Jobs and the stock market

The United States economy has pumped out two consecutive quarters of real GDP growth because it is still very positive even after you adjust for inflation. This is good for stocks but better for certain stocks, such as those exposed to the consumer discretionary cycle. Speaking of which, here's where the cycle is headed.

Now that the FED has rolled out its intentions to begin cutting rates through 2024, up to six rate cuts are projected, and cheaper money can spark a new wave of consumer spending. Now, what better place to spend cheaper money after a roller coaster of 2023? How does the leisure and recreational space sound?

Perhaps this is why the industry has attracted a decent chunk of all the jobs added to the economy last month, but more on that later. What you need to know is that stocks like Carnival Co. (NYSE: CCL), Royal Caribbean Cruises (NYSE: RCL), and even Norwegian Cruise Line (NYSE: NCLH) could soon come into the crosshairs for investors hungry for an upside.

Making sense of it 

In the past month, the economy has added - and created - up to 199 thousand jobs, according to the latest employment situation reports. Of all those jobs, forty thousand were headed to the leisure and hospitality industry, representing 20.1% of all jobs added.

Making up a significant amount of all the economic employment activity should draw your attention to the space, specifically to stocks that promise above-average prospects for this coming year. Because money will become cheaper due to lower interest rates, growth will become the number one thing investment dollars will be after.

The relationship is simple and accurate across every cycle. The rate of interest a currency commands essentially determines its value, among a thousand different factors, but stick to this logic for now. Lowering interest rates could reduce the value of the Dollar, whose index has already declined from roughly $106.0 to $102.0 today.

What happens next is that you need more of the same dollar to buy the same goods and services you used to buy before (inflation). So, professional investment managers need to earn their fees, and the first way to ensure that happens is to beat inflation and the value of the currency.

Now, knowing that cheaper money and financing rates could trigger a new wave of consumer spending and activity, a theory that the leisure and hospitality industry is definitely preparing for judging by the number of jobs it added, you need to know that the average EPS growth for the space stands at 23.8% for the next twelve months.

Your job now is to find the outliers here, promising you even better growth. Don't worry, the homework has been done for you here:

X on the map

Analysts have woken up to these trends and the new reality for the industry, which is why paying attention to their earnings growth projections is critical this time around. Remember, you need to find stocks with EPS growth rates higher than 23.8% in this space.

Taking projections for Royal Caribbean first, analysts sit comfortably with their 38.1% projected growth, which is definitely above the average industry growth. These projections and the rest of the trends mentioned before have driven analysts at Argus and Tigress Financial to raise their price targets.

With a respective target of $142.0 and $155.0 a share, these analysts are pointing to upsides of 20.9% and 31.9% from where the stock is trading today, talk about growth.

Carnival doesn't fall too far off the same tree since analysts have slapped a 38.8% EPS growth projection for this name. Current price targets landing on an average of $20.4 a share, 24.8% higher than today's prices. However, analysts at Barclays (NYSE: BCS) and Macquarie see the stock going to $24.0 and $22.0, respectively, for a much higher upside.

Last but not least, Norwegian Cruise Line calls for the most aggressive jump in earnings out of the industry, where analysts are boldly pointing to an 87.2% jump in the next twelve months. While most price targets fall on an average of $19.0 a share (which is 9.9% higher than today), one analyst is betting ahead of the curb.

Once again showing its awareness of the industry's comeback, Tigress Financial delivered a price target of $32.0 a share for this stock. At this prediction, there is an implied upside of 84.7%. 

Connect the dots on these trends just like these analysts did, and your portfolio could potentially benefit from multiple rallies all at once.

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