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3 consumer stocks that you should buy for the new financial year

It’s hard to shake that sinking feeling when it comes to consumer-facing stocks as the online threat, weak wage growth and record high household debt are conspiring to drag the sector lower.

Sentiment towards the sector isn’t helped either with the crash in the share prices of some high-profile retailers too, including Harvey Norman Holdings Limited (ASX: HVN) and Myer Holdings Ltd (ASX: MYR).

The new financial year is unlikely to bring much relief although there is a handful of consumer-facing stocks that Macquarie Group Ltd (ASX: MQG) is urging investors to buy now as they are poised to outperform the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) in FY19.

The first is Kathmandu Holdings Ltd (ASX: KMD) following the outdoor gear retailer’s market update on Monday.

Management reported a strong increase in second half same-store-sales with its Australian operations recording a stunning 13.8% increase. The company is tipping full-year net profit to jump around 30% plus to between $48 million and $52 million for the period ending July 31, 2018.

The update has prompted Macquarie to upgrade its earnings per share (EPS) forecast on Kathmandu by 9% for FY18, which resulted in a 20 cents-a-share increase to the broker’s price target on the stock to $2.98.

The unseasonably hot and dry weather we have experienced from January to May could also play right into the hands of Coca-Cola Amatil Ltd (ASX: CCL).

“Data from the BOM [Bureau of Metrology] across Australia’s major cities confirms the below average rainfall in the first five months of 2018,” said Macquarie.

“The warmer and drier weather than normal over the first five months of 2018 could be a key driver to earnings upside in CCL’s 2018 half-year results to be announced on the 22nd of August. Weather is a significant determinant of cold beverage consumption with consumers more likely to purchase cold beverages on hot and dry days.”

The broker has an “outperform” recommendation on the stock with a price target of $9.26 a share.

The third stock that could outperform is discount chain Reject Shop Ltd (ASX: TRS), in my opinion. The stock has slumped by nearly 30% over the past three months as speculation that it is subject to a takeover bid faded.

I think the drop is unjustified on fundamentals, particularly given the strong half-year results it posted. The stock is ripe for a recovery in FY19.

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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited and The Reject Shop Limited. The Motley Fool Australia has recommended Coca-Cola Amatil Limited and The Reject Shop Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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