Highlights From the Jefferies 2013 Global Consumer Conference

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Jefferies is hosting its 2013 Global Consumer Conference on June 17 – 19 in Nantucket, MA. More than 60 companies are presenting across a variety of consumer-related sectors, including consumer finance, consumer products, restaurants, and retail & apparel.

As the broader market reaches multi-year highs, consumer-related stocks may have more room to run. The Consumer Discretionary SPDR Fund (NYSEMKT: XLY) has outperformed the S&P 500 year-to-date with a 20.6% gain, compared to only 15.7% for the S&P.

Recent data points support rising valuations as the consumer recovers to pre-crisis levels. The Thomson Reuters/University of Michigan consumer sentiment index reached a high of 84.5 in May 2013 before falling slightly to 82.7 in June. The May recording was the highest level since June 2007 -- an impressive figure and a six year high.

We Fools are focused on identifying quality companies for the long-term. Here are two stories I uncovered at this year’s Jefferies conference that may benefit from a healthier consumer:

Technology-based consumer solutions

Shares of iRobot Corporation (NASDAQ: IRBT) have more than doubled so far in 2013 as management has introduced new robots and raised its full-year sales and profit guidance.

iRobot was founded in 1990 by researchers at the Massachusetts Institute of Technology with a vision of “making practical robots a reality.” Today, the former start-up has a $1 billion market capitalization and sales have grown to nearly $500 million annually.

The company has captured 10% of the $2.1 billion market for vacuum cleaners which cost over $200. Purchasing a vacuum cleaner with artificial intelligence is definitely a discretionary purchase, which is why iRobot may grow sales with an improved consumer.

Chief financial officer Alison Dean spoke at the recent Jefferies conference. In addition to the consumer, iRobot is developing robots for health care, enterprise, and retail applications. For instance, the Brazilian government awarded iRobot a $7.2 million contract earlier this year in preparation for the 2014 FIFA World Cup.

On a valuation basis, iRobot raised its full year profit outlook to $0.80–$1.00 on sales guidance of $485–$495 million. The stock is richly priced at 40x–45x price-to-earnings, however the share price becomes reasonable when considering other factors.

First, iRobot has an extensive intellectual property (IP) portfolio which gives the valuation upside. Second, the company has blue-chip partners to grow sales, including Cisco for enterprise applications, Honeywell for security applications, and InTouch Health for health care applications. Third, iRobot is a potential takeover candidate for an existing partner or a larger conglomerate.

Despite the rich valuation, I believe iRobot will yield additional upside over the next 12 months.

Leading footwear designer

Deckers Outdoor (NASDAQ: DECK) designs footwear for high performance outdoor activities and casual everyday use. The company operates under the UGG Australia, Teva, and Sanuk brand names.

Jefferies views Deckers Outdoor as its #1 pick for 2013 -- the investment bank has a $100 price target on the stock, nearly double the current market price.

CFO Tom George presented at the recent Jefferies consumer conference, highlighting UGG Australia growth in mens', kids’, handbags & apparel. The company is planning to dramatically increase its retail business over the next two years. Deckers currently operates 78 stores worldwide and forecasts 200 stores under operation by 2015.

Management anticipates that sales will grow 5% for fiscal 2013, with profits expected to grow about 7%. The company maintains a calendar fiscal year.

Deckers Outdoor is also viewed as a likely takeover candidate. When considering the math involved, Jefferies believes an external buyer would earn a high rate of return by acquiring Deckers through a leveraged buyout.

Foolish takeaway

Consumer confidence is at a six-year high as faith in the U.S. economy continues to improve. Slow but steady hiring gains, rising stock prices, and normalizing home values all indicate Americans have greater personal belief.

Deckers Outdoor and iRobot are two speculative plays that are levered to a recovering consumer.

Readers interested in casting a wider net should consider the Consumer Discretionary SPDR, which offers broad exposure to nearly 80 companies with consumer-related businesses. The top three holdings include Walt Disney Co., Home Depot, and Comcast.

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John Macris has no position in any stocks mentioned. The Motley Fool recommends iRobot . Try any of our Foolish newsletter services free for 30 days. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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