Buy these 14 stocks set to benefit most from the surge in year-end holiday spending: Morgan Stanley

• Holiday spending is expected to rise from last year’s record high.
• However, elevated inflation has made many consumers especially deal-conscious.
• Here are 14 companies that will benefit from the upswing, according to Morgan Stanley.

Americans are gearing up for one of their favorite seasonal activities: shopping ’til they drop.

End-of-year spending is expected to be robust once again, according to a new note from Morgan Stanley based on the Wall Street giant’s survey of roughly 2,000 US consumers.

“This holiday season is likely to see stronger spending than last,” Morgan Stanley strategists led by Michelle Weaver wrote in a November 13 note, citing sentiment from her firm’s economists.

The key finding from the survey is that about a third of respondents plan to spend more over the holidays than they did last year, while only 22% or so plan to cut back. About 37% of consumers said they anticipated spending about as much as they did last November and December.

Holiday spending reached a record of over $964 billion in 2023, which was up 3.8% from 2022, according to the National Retail Federation. That jump was near the higher end of the NRF’s estimate and outpaced inflation, which was 3.4% last December and 3.1% in the prior month.

Rich shoppers are ready to spend, deals or no deals

Although price growth is down substantially from its highs, it ticked up in October and remains problematic for most consumers. Persistent inflation has made many shoppers hungry for deals.

“Companies could see a little more holiday cheer this year, but spending isn’t likely to increase across all categories as consumers remain selective,” Weaver wrote.

To that point, roughly half of consumers say that they expect stores to cut prices over the holidays. By comparison, only 28% of shoppers expect price hikes, which is down from 33% of respondents in 2022, when inflation was just starting to fall from its peak.

Without discounts, an eye-catching 69% of survey respondents indicated that they’d reduce their spending at least modestly, in part by buying cheaper goods. But some shoppers seem to be insulated from elevated prices, as 27% said they’d spend like normal without major sales.

Unsurprisingly, this discrepancy is most evident across income segments. Lower-income shoppers are most likely to trim their spending without deals, while upper-income households are most likely to increase their spending compared to last year.

“The setup for the consumer remains tricky as higher-income consumers continue to drive spending, while lower-income consumers feel the impact of multiple years of elevated prices,” Weaver wrote.

Another under-the-radar headwind for businesses is the calendar. There are just 27 days between Black Friday and Christmas, which is the shortest possible holiday shopping season.

How to ride the end-of-year spending wave

Although almost everyone is feeling the pinch from higher prices, there are several reasons to be upbeat about holiday spending, not counting Morgan Stanley’s findings.

Money is flowing into goods at a faster pace after lofty interest rates had weighed on spending earlier this year, Weaver wrote. That momentum may carry into the holiday season.

Consumer spending also grew faster than last year on an inflation-adjusted basis in the first nine months of 2024, and there haven’t been any economic hiccups big enough to derail that.

However, that’s not to say that all companies will equally enjoy that surge in holiday spending.

“Consumers are not planning to go on a spending spree across categories and will continue to allocate budgets selectively,” Weaver wrote. “This is likely to create an environment of leaders and laggards with industries exposed to lower-priced goods faring better than those exposed to big-ticket items.”

In the note, Weaver and her team outlined 16 companies with significant exposure to holiday spending, though only 14 of those stocks have bullish ratings from Morgan Stanley analysts. These firms are from various industries, including e-commerce, retail, and travel.

Below are those 14 overweight-rated stocks, sorted alphabetically by industry and within their industries, if applicable. Each is accompanied by its ticker, market capitalization, price-to-earnings (P/E) ratio, industry, and commentary about that industry from Morgan Stanley.