Americans’ average hourly earnings rose 0.6% more than inflation between March 2023 and March 2024. Since the Consumer Price Index climbed 3.5% year-over-year (YOY) last month, we can infer that Americans’ actual average wage increased 4.1% YOY in March. Since 2021, there have been similar hikes in our compensation. Many firms, including restaurant chains, advertisers, companies in the travel sector and large retail chains, have benefited from these wage hikes. Indeed, since the U.S. economy is primarily based on consumption, I believe that these compensation gains are the key reason why the nation has avoided the recession that so many were sure would be caused by the Federal Reserve’s interest rate increases. Moreover, the wage gains are also largely responsible for the stock market’s attainment of new all-time highs this year. With that said, here are three stocks to buy to profit from U.S. wage growth.
Chipotle (CMG)
Restaurant chain Chipotle (NYSE:CMG) is clearly getting a huge boost from U.S. compensation hikes. The company’s first-quarter revenue jumped 14% last quarter versus the same period a year earlier to $2.7 billion, while its comparable restaurant sales jumped 7% year-over-year.
What’s more, its operating margin came in at 16.3% last quarter versus 15.5% in Q1 of 2023 and its earnings per share soared an incredible 23.9% YOY to $13.01. The company was able to increase the average amount spent by its customers by 1.6% YOY.
Moreover, CMG continues to expand, as it opened 47 new restaurants in Q1. The company added that a number of its “marketing initiatives” proved to be quite successful.
With Chipotle’s offerings obviously clicking with consumers and the firm growing rapidly and benefiting from consumers’ wage growth, I expect CMG stock to easily outperform the stock market going forward, making it an ideal option among stocks to buy.
Alphabet (GOOG, GOOGL)
Americans’ wage growth and the resulting, strong economic growth that the country has experienced have led marketers in recent months to spend much more on ads than they did in 2022 and the first half of 2023.
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), which gets the lion’s share of its revenue and profits through advertising, has been a major beneficiary of this trend. For example, in the fourth quarter of last year, its top line came in at $86.3 billion, up from $76 billion in Q4 of 2022., while it generated $24.9 billion of operating income, versus $18.16 billion during the same period a year earlier.
In a note to investors on April 17, Truist, a U.S. bank, predicted that GOOG would report “solid” Q1 results, driven by strong engagement trends which have, in turn, triggered increased ad revenue for Alphabet.
In other words, consumers, flush with increased funds from wage growth ,are clicking more on Alphabet’s paid ads, causing its top line to surge.
Truist, which hiked its price target on GOOG stock to $170 from $158, expects the company’s Q1 results to come in slightly above analysts’ average estimates.
General Motors (GM)
General Motors (NYSE:GM) delivered very strong Q1 results which demonstrated that it’s been a major beneficiary of Americans’ wage growth.
The automaker’s net income surged a very impressive 24% last quarter versus the same period a year earlier to $2.98 billion, while its automotive operating cash flow soared 61% year-over-year to $3.6 billion.
Moreover, GM increased its 2024 EPS guidance to $9-$10, versus its previous target of $8.50-$9.50.
Multiple Wall Street analysts were pleased with the company’s results and bullish on the outlook of this option among stocks to buy.
For example, Swiss bank UBS, calling GM one of the best names in the auto sector, increased its price target on the name to $58. Meanwhile Japanese bank Mizuho, lauding the company’s position within the SUV and pickup truck market, hiked its price target on the name to $52.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines