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Consumer Sector PowerTrends
11/11/2015 10:00 am EST
In selecting stocks, Chris Versace focuses on enduring, long-term trends called PowerTrends. Here, the editor of Growth & Dividend Report explains his investing strategy and looks as some favorite stocks poised to benefit from various trends impacting consumer spending.
Steven Halpern: Joining us today is growth and income expert, Chris Versace, editor of Growth and Dividend Report. How are you doing today, Chris?
Chris Versace: I’m doing just fine, Steve. Thanks for having me.
Steven Halpern: The underlying foundation of your advisory services are what you call Power Trends. Could you explain what these trends are to our listeners and why they’ve proven to be so effective in helping in your stock selection process?
Chris Versace: Sure. I mean, the beauty of power trends is looking at the shifting landscape and demographics technology, factors that are hitting the global economy, mixing in some regulatory mandates and other psychographic factors, which psychographics tend to focus in on the what, where, how consumers and businesses and other institutions are buying what they’re buying.
By looking at these shifting landscapes, we identified tailwinds that push businesses forward and headwinds that stall some companies out. What we like to do is piggyback on the tailwinds and avoid the headwinds.
Steven Halpern: Now, I guess it’s implied that these power trends are long-term, enduring trends, rather than market noise.
Chris Versace: I think that’s absolutely right. You know, if I could play on that, Steve, we look for the signal, not the noise.
Steven Halpern: Now, the power trend we’re going to focus on today is consumer spending. Could you explain the power trends that you see in the consumer spending area?
Chris Versace: Well, you know, I don’t really refer to it as consumer spending. Consumer spending is more of an economic term, so when we look at the variety of factors that I mentioned, we see a couple of different things.
One is what we call the Cash-Strapped Consumer where we know that—despite a falling unemployment rate, labor force participation rates, particularly here in the US, or even payroll to population has been rather weak—we haven’t seen a lot of wage growth. So we’ve seen, actually, consumers more trading down than trading up, so that obviously has an impact on, as you would say, consumer spending.
Also too, there is another PowerTrend—the Rise and Fall of the Middle Class—where, sadly, we’re not seeing a rise of the middle class here in the US, but we’re seeing it outside of the US, which gives way to greater disposable income and really bodes well for the international expansion, particularly of branded products.
Steven Halpern: Now, an important part of your assessment in this area relies on the holiday season. What do you see shaping up in this regard?
Chris Versace: Well, any time, you’re going to talk about companies that benefit, again, as you say, from consumer spending, you have to be cognizant of the holiday season because it accounts for so much of retail revenue. You know, again, if were talking about consumer spending, there are a variety of retailers, from apparel to foods to electronics, so we have to pay attention to what’s going on there.
So far, it’s looking as if that spending year-over-year will slow but still be up some, you know, 3.5% to 4% in 2015 compared to 2014. The positive, though— because there’s always a positive lining—is that online and global continue to take share and that really just continues the trend that we’ve seen over the last several years. That fits quite honestly with my "Always on, Always Connected" power trend.
Steven Halpern: Now, three stocks that you’ve been recommending that you feel are well positioned to benefit from these trends are Apple (AAPL), Disney (DIS), and Under Armour (UA). Could you give our listeners a brief overview of the stocks and why we find them to be attractively positioned?
Chris Versace: Sure. I mean, Apple, obviously, is benefiting from—once again—a strong introduction in market share gains for its latest iPhone, the iPhone 6S and the iPhone 6S Plus, but we’ve also got other products that are coming on stream, including a new Apple TV that really changes the game for Apple in that category.
We have an iPad Pro that should drop, I believe, in early November, where they’re going to use that to target the enterprise with partners like Cisco (CSCO) and IBM (IBM) and we still have a new line of overhauled Macs that are coming due and Apple continues to take share there, so I think they’re well positioned for the holiday season.
As far as Under Armour goes, you know, they are a fierce global brand, but when you look at their business, it’s still heavily US and male dominated and we see them focusing on footwear, focusing on the women’s market, and international expansion as all good growth drivers. Again, that’s for Under Armour.
Then finally, for Disney, you know, we have a massive, massive opportunity for Disney that’s going to drop on December 18 and that is the next installment of the Star Wars franchise. I think that is going to be huge. Even just last night I was watching some television and I saw another merchandising effort for Star Wars, which was Covergirl Star Wars makeup.
But we’ve got toys and other things that are coming and longer-term, Disney’s going to benefit from a growing slate of Marvel-related movies as well as Pixar movies. As I see Disney, it’s content and merchandising that is big and that I see them continuing to execute.
Steven Halpern: A particularly interesting trend that you've been bullish on for a while now are new technologies in the consumer area, such as mobile payments. What do you see developing here in which you perhaps share some ways for investors to gain exposure to this new market?
Chris Versace: Sure, sure. I mean, really over the last year since Apple has launched Apple Pay, we really started to see some traction in mobile payments, but there are other modalities too. There’s PayPal (PYPL).
Again, I tend to be a "buy the bullets, not the gun" type of player. From that perspective, I like PayPal and I’m recommending PayPal in my service, Growth and Dividend Report—which was formally Power Trend Profit—in part, not so much because of the consumer adoption, but because it’s some of the brains behind completing transactions on Apple Pay with Uber, Airbnb, and others.
I really continue to like that and I think that PayPal will continue to make inroads and with corporate customers like Macy’s (M) and others.
I just see more growth in mobile payments longer-term as we see more of the globe move away from cash and check to initially credit and debit cards, but then mobile payments, as more smart phone-enabled payment phones come out to the marketplace.
Also too, we’re going to see that with wearables as well. For example, people can pay using Apple Pay with the Apple Watch, so I think were in the early innings of this.
Steven Halpern: Again, our guest is Chris Versace of Growth and Dividend Report. Thanks so much for your insights today.
Chris Versace: Oh, thank you, Steve. Hope to do it again.
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