The Day Ahead: Consumer Unease

 | Feb 06, 2013 | 8:00 AM EST  | Comments
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When was the last time you talked with an executive from a company that has 25% of your life savings? Have you ever chatted with a seemingly low-level employee from a company over which you lose sleep, finding out how it's doing at the ground floor? Quick, what are the top three companies in Dell's (DELL) supply chain, seeing as you have owned the stock from 2007?

If my career has yielded one valuable insight, it's that the average investor is unlikely to have met an individual directly or indirectly involved with a stock in their portfolio. So -- while some finance blogger may be preparing for calls with people who have knowledge on a company's supply chain -- where should you go for such knowledge? Where can you find fresh information on stocks and markets that nobody is caring to mention?

This sounds incredibly simplistic, but go to the corporations themselves, and peruse those free SEC filings. The trick to pursuing organic knowledge is to read in large volume -- and, after a while, you'll uncover certain trends with ease. With that in mind, here are a few trends I've found as I've pounded the phone old-school style -- and from plowing through reams of company filings like a human Bloomberg terminal.

First, Yum Brands (YUM) same-store sales are up 1% in the U.S. That paints a bleak picture of the low-income consumer, much in the way that McDonald's (MCD) did a couple weeks ago. For those who jumped inside the hot-air balloon that was McDonald's, believing it to be the ultimate turnaround stock, Yum! Brands core numbers should have served as a karate chop to the gut.

Also, Clorox (CLX), Church & Dwight (CWD) -- and, to a lesser extent, Kimberly Clark (KMB) -- have pushed through pretty strong price increases on products that, on balance, are reformulated or repackaged not to last as long (which increases new-purchase frequency). Volume for consumer-product companies is growing noticeably more slowly than are price increases. That, in turn, brings into question the true health of the consumer as folks contend that the "wealth effect" will increase spending.

On that subject, I recently talked with an executive at Family Dollar (FDO). From this, I have personally concluded that -- instead of the dollar stores themselves -- the best investing option is consumer-product names (Clorox in particular) that sell into an aggressively expanding dollar sector. Dollar stores are giving brand names greater shelf space. While that hurts their profit margins, it is helpful to those consumer-product companies by way of increased distribution. Moreover, if the announcement from 3M (MMM) was a "tell," stronger-than-expected fourth quarters from consumer-product companies -- and encouraging first-quarter outlooks -- could lead to hearty dividend or stock-buyback increases.

The basic message here is that all of the above ideas have been spun directly from the companies themselves. Is it a good sign that consumers are able to buy that newly released concentrated Clorox liquid bleach at a premium price? Sure. But I really am starting to wonder if the U.S. economy is strong enough to support price increases from different walks of life -- say, products for everyday needs -- without negatively impacting other kinds of spending. For example, more outlays on basic necessities may stand to chip away at the budget for that now-higher-priced Disney (DIS) vacation package.

No, this is not a market-top call. Stay engaged. I remain unwilling to proclaim, "OMG, the sky is falling, toss in the towel" until I am hit over the head with actual facts.

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