Two Stocks To Buy As Consumer Sentiment Soars

Author's Avatar
Nov 25, 2014

The U.S. is primarily a consumption-driven economy and depressed consumer sentiment impacts corporate growth and GDP growth. However, as the chart below shows, consumer sentiment in the US is currently at its highest level since the financial crisis of 2008-09.

03May20171247411493833661.jpg

Positive consumer sentiment is a big bonus for the corporate sector as the festive season approaches. This article looks at two stocks that can be considered for the next 2 quarters. The fourth quarter of 2014 and the first quarter of 2015 are typically influenced by consumer spending and with consumer sentiments at elevated levels, these stocks are likely to outperform over the next 6 months. I must add that these two stocks are great long-term investments we well.

Walmart (WMT, Financial) The stock has already performed well in the last three months with the stock moving higher by 12.8%. I believe that the rally for Walmart will continue over the next six months. Walmart is one of the best consumptio- driven themes to invest in the U.S. and the current consumer sentiment is a good time to consider exposure to the stock.

Walmart also reported strong second quarter results and the stock has been moving higher on positive results coupled with strong growth in the company’s e-commerce sales. The company has been making investments in e-commerce and mobile technology, and these investments are likely to yield strong results over the next six months and also over the long term.

Walmart is also interesting from the perspective that the company has a low beta factor of 0.18 and a very sustainable dividend yield of 2.3%. I expect Walmart to post healthy 4Q14 and 1Q15 results and the stock will be driven higher in the near-term due to these two quarters.

I also like Walmart as the stock is not expensive. The stock currently trades at a forward PE of 16.27 and this is attractive considering the current broad market valuations. I therefore expect Walmart to edge higher, and the stock has the potential to outperform the S&P 500 (SPY) in the next six months as it has done in the last three months.

Chipotle Mexican Grill (CMG, Financial) Chipotle is a high growth stock that is also expected to benefit from the festive season, and I expect the stock to outperform the broader index over the next two quarters. Chipotle has been trending higher and the stock is up by 23.8% in 2014. This positive momentum for the stock is likely to continue until the first quarter of 2015. I also believe that Chipotle’s strong growth momentum will continue beyond 1Q15, and the stock is an excellent long-term investment.

One of the biggest factors that work for Chipotle is the company’s healthy food menu offering as compared to McDonald's (MCD, Financial) or Burger King (BKW, Financial). With an increase in obesity and other health problems in the United States, Chipotle offers a perfect substitute for the relatively unhealthy food offering and this is attracting consumers.

The strong demand for Chipotle’s offering is evident from the company’s comparable restaurant sales, which increased by 19.8% in the third quarter of 2014 and by 17% in the first nine months of 2014. With the festive season underway, the company’s new store sales and comparable store sales are likely to remain very robust and this will keep the stock trending higher.

Chipotle is currently trading at a trailing twelve month PE of 51.4. However, the company’s growth trajectory is sharp and the valuations are not expensive. The company’s forward (FY15) PE is currently 37.9 and I believe that strong earnings growth will continue to take the stock higher and the PE is not very relevant for this high growth company.

In conclusion, increase in consumer sentiment is a big positive for the U.S. economy and is a big positive for the corporate sector. The two companies discussed are likely to benefit significantly over the next six months as consumer spending increases on positive economic outlook and the festive season.