Let's call a spade a spade.
Things are scary out there: Our government almost defaulted on its debt, the United States lost its coveted AAA rating, and the S&P 500 is down more than 16% in the past two weeks.
Investors have lost a lot of money lately. But from where I sit, some companies have been punished unfairly. Though it may sound counterintuitive, I think retailers that cater to high-wage earners are well-suited to deal with such sputtering in our economy.
A class of Americans who aren't hurting
Even before the recent downturn, we were in unique economic times. Although blue chip companies have been reporting record profits, unemployment remains very high.
How could this be?
It's because our country's largest employers have been squeezing every last ounce of efficiency out of their current employee base.
Instead of using record profits to hire new employees, these companies have hoarded the cash to create a safety net for times just like this. In fact, Moody's reported that by the end of 2010, nonfinancial companies had accumulated a record $1.2 trillion on their balance sheets.
Knowing this, there are a couple of assumptions I'm going to make about individuals who shop at high-end retail stores:
- They have at least one wage earner in the household.
- They are not struggling to meet their basic needs.
- They are more likely to keep their jobs if there is a double-dip recession than they were the last time the economy hit the skids in 2008.
The final assumption that I make is probably the most important one. Since 2008, companies have really cut the fat in their operations. Margins have widened due to operational and personnel efficiencies. Any employees laid off now would likely hurt a company's bottom line far more than it would have back in 2008.
Four deals the market is offering up
Whether it's fair or not, I don't think the spending patterns of this group of consumers is going to change very much just because the S&P 500 is down or because the government is slashing spending.
But some of the companies that cater directly to this group of consumers have seen their stocks fall quickly. Below, I offer four companies that I think could be a steal at today's prices.
|
Company |
What They Offer |
1-Month Price Change |
|---|---|---|
|
lululemon athletica |
Yoga and running wear, primarily for women | (19%) |
|
Whole Foods |
Organic food groceries | (16%) |
|
Coach |
Handbags and clothing accessories | (25%) |
|
Deckers |
Teva sandals and Ugg boots | (15%) |
Source: Yahoo! Finance.
lululemon is like the Under Armour
Whole Foods also has been firing on all cylinders lately. The organic goods grocer posted impressive comparable-store sales gains of 8.4% for the second quarter. Fellow grocer The Fresh Market
Meanwhile, both Coach and Deckers have shown strong appreciation in their revenues, thanks in part to their international appeal. Coach, led by visionary CEO Lew Frankfort, has been posting double-digit gains in profitability thanks both to its direct-to-consumer business as well as its global expansion.
Deckers, meanwhile, has been busy spreading its business abroad , while redesigning its Teva and Ugg brands to fit year-round footwear habits. The strategy has paid off, as earnings per share have grown a whopping 38% per year over the past five years.
Never fear
Is there any way that I can guarantee such companies will continue to prosper if the global economy continues to decline? No way. And if anyone tells you otherwise, don't believe them. Instead, I'm offering up my thought process behind four great stocks that have been hit hard, three of which I own (see disclosure below) and plan on holding.
If you'd like more ideas given the uncertain future of our economy, I'm willing to offer you access to a special free report: The Tiny Gold Stock Digging Up Massive Profits. Inside, you'll find out about a little-known company that has "discovered a mountain of gold in Canada." The report is yours today, absolutely free!
