The consumer doesn't know when to quit. She's spending twice as much as she did last year at this time -- at least according to the people at Bank of America (BAC) -- and it is rippling through the economy in ways that are just unfathomable versus 2016.
I think the consumer's health is unappreciated here. We spend a lot of time talking about how the corporate tax cut is going to bring a lot of cash to the bottom line for a lot of retailers. However, we know that investors like bottom AND top line growth. A bountiful change in the tax regime for retailers who tend to be full taxpayers is gigantic for the vast majority of retailers and restaurants.
But the top line, the consumer spend factor is the new wild card and boy is it playing out in spectacular fashion. You add in the fact that we have a weak dollar and you really have some good news ahead.
What's the consumer spending on? Take the case of Tiffany (TIF) . Here's a company that has struggled of late, with negative comparable store sales in part because of the high price point of their goods but also because their New York store, so important, has been hurt by a weak dollar.
The consumer's spending again and the overseas customer is back. Same store sales for the holiday season, which had been in a sickening slide, reversed going from minus one percent in 2016 to plus three percent this year. That's a very big reversal.
I think that a lot of the money is going toward home improvement and you see that in the ever-rising prices in the stocks of Home Depot (HD) and Lowe's (LOW) . These are now richly valued but they are by and large domestic companies that can have a real windfall if the consumer's opening her wallet. I continue to like both and while I recognize there are activists circling in Lowe's, Home Depot's execution is so superb I would stay with that horse.
My charitable trust owns Activision Blizzard (ATVI) which is in the red-hot video game space and I think should be bought on its strong sales alone, but through in the Overwatch league, the e-sports phenomenon-and I think you have a terrific stock.
I also would think about buying Darden Restaurants (DRI) , the owner of Olive Garden, which I think still hasn't reflected the incredible turn in Olive Garden and the possibilities of other concepts growing ever bigger. Don't forget even after its amazing run you have a 2.5% yield to cushion you on a downdraft.
With this rough winter I think the auto parts stores will continue to win and my favorite there has been Advance Auto Parts (AAP) , which I think is going to get you a return either from earnings or consolidation.
Please don't forget the department stores. Kohl's (KSS) has had a huge move. But Macy's (M) , with a big presence in New York City, has a lot of exposure to the weak dollar and real estate optionality. I would love to see the Macy's in Herald Square become a mini-mall of high end stores and restaurants anchored by the fabled department store.
The consumer could be so strong that the Nordstrom (JWN) family might want to take its own company private. It tried earlier and failed but now things are much more halcyon.
Finally, I have been enamored of bargains and the bargains are found in the aisles of Walmart (WMT) , Dollar Tree (DLTR) and Dollar General (DG) . Even after these phenomenal runs they aren't done. Not if there's a dramatic decline in the tax rate coupled with a consumer spending at twice the pace of last year.
No need to charge into these stocks. You can buy a little but let's remember we had that reversal day on Tuesday. Once you have one you are very prone to having more so being aggressive may be the wrong call for the moment but the right call for the duration.