The Consumer is Back!
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After sorting through last week’s heavy dose of economic data, there is one theme that I can positively identify and construct a theory around: The American consumer is back!
Slowly but surely, growth is returning to the land of the free and the home of the brave. While some choose to focus on how slow the recovery is, and overanalyze the not so perfect data, I choose to follow the signs and prepare for what is next. The job market has been improving at a steady pace for the past six months, consumer confidence hit a year-to-date high last week, and consumer income as well as expenditures are gaining at a modest pace. All of these facts lead me to believe that retail goods, both durable and non-durables will be the next sectors of strength in this bull market.
Looking to capitalize on these themes, I have found a few stocks that meet my investment requirements, and will benefit greatly from increases in consumer income and spending. Starting with the durable goods sector, Ford (NYSE: F) is currently trading at a huge value. With a P/E ratio of roughly 2.5 and a yield of 1.6%, Ford is a great way to play the American growth story. Motor vehicle sales were up 6.5% in February, and this leading indicator should continue to be strong. Meanwhile, they issued their first dividend since 2006 in January, and another one last week. The stock is currently trading in a channel, but can be expected to bounce to the upside if the strength in auto sales continues.
In the retail sector, I continue to be impressed with the restructuring of J.C. Penney (NYSE: JCP). The age-old clothing store has committed to revamping its stores and using new marketing campaigns to target a larger and younger population. While their sales numbers have not been so hot in recent history, the complete brand remodel provides the catalyst necessary for me to invest. On top of this, the stock is yielding 2.25% annually and is currently trading near historical levels of support. If you are looking for a more diverse play on the retail sector, I recommend H&M (NASDAQOTH: HNNMY.PK). As the second-largest fashion retailer in the world, this international giant is in great shape to take advantage of the return of the consumer. With over 2500 stores in 43 countries, same-store sales are in a healthy upward trend for this Swedish fashion chain.
Lastly, I would like to mention a company that has an opportunity to post huge sales over the next many years and is in an excellent position to benefit from the return of the consumer. Now that their merger is complete, United Continental (NYSE: UAL) is officially the largest airline in the world. With air travel becoming more and more utilized for business and leisure, this operator can now function under the necessary economies of scale to become profitable. They currently have an excellent loyalty program and are competitively marketing themselves in an attempt to become the most successful airline ever. While the rising cost of jet fuel may be a potential concern, I expect the continuing increase in demand for air travel to outpace this threat.
While sometimes it pays to be a critic, the American recovery story is firmly in place and I expect this theme to continue as consumers finally appear to have the confidence to spend.
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