Analysts Recommend Discount Store Stocks Due to the Economic Worry
Cowen and Company analysts are pushing investors towards stocks for companies that deal in lower-priced goods like Wal-Mart Stores Inc (NYSE:WMT) and fast food restaurants due to concerns about economic health and lower-income consumers increasing in number.
The analysts report that the state of low-income consumers is only getting worse, with a personal savings rate of 3.5% being well below historical trends. Nonfarm payroll growth of 1.4% was also the slowest rate since 2012, and with healthcare expenses growing at a seven percent compound annual growth rate, low-income consumers are in an increasingly vulnerable position.
Other factors that have affected the Cowen and Company’s report come from the political sphere, with the White House’s stance on NAFTA renegotiation and the elimination of the Deferred Action for Childhood Arrivals (DACA) posing threats to lower-income consumers and the economy overall.
“Key metrics related to jobs, spending, consumer credit and confidence have largely moved in the same direction since 2009, but we see signs of stress at the lower-income consumer level and divergences between high- and low-income consumers,” Cowen analysts wrote in their report.
“After having been constructive on the lower-income consumer for much of 2016, driven by minimum wage increases, we have become increasingly cautious over the course of 2017.”
With wage stagnation and other concerns affecting their projections, the analysts believe that investing in discount stores is the safer bet for Wall Street. McDonald’s Corporation (NYSE:MCD) and Wal-Mart are two of the bigger names they mentioned, both being known for low prices and therefore appealing to a growing lower-income consumer base.
And their data backs up the claim. While restaurants have experienced six consecutive quarters of traffic decline, quick-service hamburger and casual dining spots have enjoyed a relatively successful 2017 by comparison.
While the analysts’ enthusiasm for American businesses like Wal-Mart and McDonalds is a good sign for those giant American multinational corporations, the report paints a dire picture of what Americans and can and cannot afford, with the situation only getting worse after a recent spell of negative economic and jobs reports.
“Wal-Mart, TJX, and McDonald’s are in demand as low-income consumers struggle,” MarketWatch, September 6, 2017.