Tom Petruno at the Los Angeles Times makes a strong case [registration required] for strength in companies catering to working-class folks as opposed to hedge funds managers and Hollywood types. The trend has been in the opposite direction in recent years. Consider this: "On Wall Street, Coach Inc. (NYSE: COH) versus Wal-Mart Stores Inc. (NYSE: WMT) hasn't been much of a contest since 2000. The high-end leather goods maker's stock price is up 1,326% since then; shares of Wal-Mart, the retailer to the masses, are down 9% in the period."
But here's what's changed. Wages are rising: "Average weekly earnings of U.S. production workers rose 4.4% in the 12 months through March, according to the Labor Department. That was up from a 3.8% increase in the 12 months ended in March 2006 and a mere 2.6% in the period before that." Worker incomes rose 1.1% in the first quarter, the largest such rise in six years.
At the same time, growth in corporate profits is slowing. So if you decide to go with the hypothesis of working- and middle-income people having more money to spend, here are two stock picks:
America's Car-Mart (NASDAQ: CRMT) is the other company from Bentonville, Arkansas. These guys specialize in buy-here, pay-here used cars, and have struggled recently with an increase in bad loans, but are making efforts to tighten up. If people are making more money, they'll want new cars, and they might even be able to afford their car payments. Pat Dorsey of Morningstar suggest CarMax Inc. (NYSE: KMX), but Car-Mart is smaller and looks a little cheaper. Plus they're from Bentonville, so they must be good.
While Wal-Mart has drawn the ire of critics for its lack of social responsibility, Target Corp. (NYSE: TGT): has gone upscale, but not too upscale. Some of their recent "fashion" items are so in demand that they're selling out in days and showing up on eBay for several times their retail prices. Target successfully revamped its image and if wage workers are earning a little more, they may opt for the company's "affordable luxury."
Companies like Dollar Tree Stores (NASDAQ: DLTR) may do less well. All that extra money could make people less budget conscious, and they could head for stores like Target instead of Dollar Tree.
On a final note, these are not stock tips. There are numerous other factors, and one should never buy stocks solely based on macroeconomic factors. A bottom-up analysis of individual companies is always necessary. But if working Americans find themselves with a little more cash, Target and Car-Mart could be beneficiaries.
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Reader Comments (Page 1 of 1)
5-11-2007 @ 6:21PM
pebuyouts said...
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