Consumer spending in May was mostly unchanged from the previous month, according to data released Monday. Real spending, which takes inflation into account, was down 0.1%, making May the weakest month since June 2010.
Americans are slowing their expenditures for two main reasons: higher gasoline prices and higher jobless rates. Higher gas prices mean that consumers have to shift their spending away from consumer discretionary items like clothing and toward gasoline -- it also means driving more efficiently and keeping mileage low. Meanwhile, higher jobless rates encourage households to save more as it becomes more difficult to earn.
Consumer spending, also called "consumption" by economists, is the biggest component of GDP. Therefore, stagnant spending has broad consequences.
The Federal Reserve expects oil and other commodity prices to fall in the near future, which will hopefully result in more spending and hiring. Until then, the economy will probably continue growing at a snail's pace.
So how can we find investment opportunities amid the gloomy conditions? For this article, we looked at consumer goods stocks that have small short floats (i.e the percent of share float being shorted).
Short-selling is an investment technique that allows an investor to make money when the value of a stock falls. Because short-selling requires borrowing, an individual or institution must meet several requirements (including background checks) to engage in short selling. Thus, in general, short-sellers are more sophisticated than the average investor.
Because short selling reflects a prediction that prices are going to fall, a relatively small short float indicates that fewer short-sellers think that company has bad short-term prospects.
Do you agree with the short trends that these consumer goods stocks have bright prospects, despite the glum spending news? (Click here to access free, interactive tools to analyze these ideas.)
List sorted by lowest percentage of shares shorted.
1. British American Tobacco
2. Fomento Econ
4. Anheuser-Busch InBev
8. Procter & Gamble
9. Fortune Brands
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen and Andrew Dominguez do not own any of the shares mentioned above.
The Motley Fool owns shares of Diageo and PepsiCo. Motley Fool newsletter services have recommended buying shares of Fortune Brands, Procter & Gamble, Kellogg, PepsiCo, Fomento Econ, and Diageo. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo.
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