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Is The Consumer Really Dead? Sure Doesn't Look Like It


Schaeffer's Senior Technical Strategist thinks low expectations could be a boon for consumer stocks.

The final of three videos I did on Yahoo Finance's Breakout with Matt Nesto was recently posted. In the past two installments, I talked about how the overall sentiment backdrop suggests higher equity prices for the rest of this year, and why the CBOE Market Volatility Index (^VIX) might not be so "low." In this video, I discuss why we still think consumer stocks should lead us higher. Plus, I give a few actual picks and why we like them. You can check out the interview here, but here are some of the highlights:
  • Overall, expectations are extremely low for consumers at this point. With jobs data lacking among other economic concerns, many have written off the consumer. Yet, if you look at what has led us the past few years it is none other than the consumer names. We love to see that juxtaposition between price action and sentiment.
  • Visa Inc (V) is a name we like in this area. Since it's trading near all-time highs, you could argue it is "overvalued" by simply looking at something like a P/E ratio. But, if you check out the sentiment backdrop you'll find it still has room to run higher. For instance, short interest has jumped 38% during the past month and nearly 100% since May. Also, we've seen a lot of puts being traded in near-term options recently. This all adds up to plenty of fuel to push Visa even higher, as all those bearish bets are unwound.
  • Sherwin-Williams Company (SHW) is another stock we like. This is an echo housing play because the company sells paint. And should people continue to buy new houses or improve their existing ones, this name should benefit. What really stands out on Sherwin-Williams is that there is just one "buy" out of 12 total analyst ratings. Given the stock's strong price action, there is plenty of room for some well deserved upgrades.
  • The Ryland Group, Inc. (RYL) and Lennar Corporation (LEN) are two equities we like from the homebuilding sector. We've liked this group for a while now, but we still see a lot of puts coming in and shorts still betting against these names. We'd be buyers on any pullbacks in these names and the group in general.
  • Lastly, Family Dollar Stores, Inc. (FDO) is another name that fits our methodology. It has higher price action amid increasing short interest, which is always a nice mixture. Plus, it is a potential "safety" play should the economy continue to deteriorate. A stock like this could find some buyers, as consumers look to find bargains.
This article by Ryan Detrick was originally published on Schaeffer's Investment Research.

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