We keep forgetting that the economy is strong. On the eve of the results of the two-day Fed meeting, we cannot forget that employment is robust and the gross domestic product of the previous quarter wasn't supposed to happen. Other than a few people in the administration, especially Larry Kudlow, the chief economic adviser to the President. I didn't hear much talk of a 4% gain until quite recently.
We overlook this number and the strong employment in the country at our own investment peril. When we hear that wages are going up at companies where it is hard to find workers we can bemoan the gross margin degradation that paying up breeds. Or we can say, okay, where will those additional dollars go? What will previously thought to be unemployable people, including those released from prison after paying their dues - another constant theme right now - do with their newfound cash?
I think it makes a strong case to go back and look at retail. Have you noticed the resurgence in Walmart's (WMT) stock? Have you been to a Walmart lately? I have been to a bunch of them and they look great and still have those same low prices. I know Target (TGT) has run but it still has a depressed price-to-earnings multiple of 15 on next year's earnings and a bountiful 3% yield.
I would consider Costco (COST) even after its run because of that fabulous membership stream. The numbers there are stellar. And don't overlook the stalled Home Depot (HD) because, with a shortage of housing, remodeling's come to the fore. Just take a look at the stock of Trex (TREX) , the faux wood, that' s zooming because of a sales increase of 31% and an astounding 49% increase in earnings per share. As CEO James Cline said on his call: "We think the trends are clear. Our residential business continues to benefit from high consumer confidence levels, and increasing repair and remodeling spend." That kind of spend represents 83% of their portfolio. An analyst questioned how much of Trex's strength came from wood becoming uncompetitive. Cline said it was difficult to "bifurcate" but that it really helped sales in the West Coast.
That said, I think it's all about stronger consumer seeking to improve their home. We saw the same thing recently with one of our favorites RPM (RPM) , maker of Rust-Oleum, DAP and a host of coatings and sealants, as well as with Sherwin-Williams (SHW) , the paint company that crushed the numbers.
And one that's coming back oh-so-nicely: Stanley Black & Decker (SWK) , the tool company that seals the deal about why Home Depot is a buy.
If you want general plays on employment I continue to believe in Paychex (PAYX) , I don't mind Automatic Data (ADP) now that it has pulled back. Both benefit from the float, the money they make while they issue your paycheck, something that will only get better as the Fed tightens. But my favorite here might be Cintas (CTAS) , the uniform company, which has reported one blow out after another as blue collar hiring remains strong.
Today's a gloom busting day. Remember that these stocks react positively on any negative China news, meaning on anything that signifies trade war. However, the good news is that "negative" is relative; it just means they don't go up as much as much on trade peace as they would otherwise.