There are more ways to wager on the U.S. consumer surviving the summer stock market swoon mentally intact than Starbucks (SBUX) and Chipotle (CMG).
Certainly nothing wrong with either of those two titans of industry, but other opportunities exist. And with consumer spending continuing to be intact (as seen in chart below, you best believe there will be several notable companies that post solid third-quarter results. Drill deeper into the names provided here this weekend.
Home Depot (HD): New York Fed President William Dudley's comments on Wednesday, which have buoyed the market, suggested the Fed will not be lifting rates as quickly as feared. I think that bodes well for housing plays, where the underlying companies have benefited greatly from rock-bottom interest rates. From what I can tell, housing demand remains very strong across the country, in part because inventory is so scarce. The scarcity is driving up values on existing homies, pushing consumers to reinvest in bigger home improvement projects than exterior paint jobs. Best Buy (BBY) had a robust second quarter in appliance sales -- ditto home improvement retailers Home Depot and Lowe's (LOW). I think the right name to bet on is Home Depot. The company's business continues to have impressive momentum in almost all areas of the store. New CEO Craig Menear has picked up where his well-regarded predecessor left off, and I expect solid sales and rising earnings estimates to continue to support the stock.
Competitor Not to Own: Lowe's -- a persistent operational laggard that had a pretty terrible second quarter during a resurgent U.S. housing market. That's never a good sign.
Abercrombie & Fitch (ANF): Believe me, can't believe I am suggesting this company as an investment (insert "lol"). For one, the competition in specialty apparel retailing is pure madness right now ¿ products are being given away, from H&M to Macy's (M). Second, Abercrombie & Fitch is nowhere near operating as well as its chief rival American Eagle Outfitters (AEO). However, for the first time in years, the company showed me reasons to be optimistic coming off its better-than-expected second-quarter results. Here are the basic elements: (1) the company began to get its fashion groove back in the second quarter amid an injection of new hires -- good to see as we near the holiday selling season; (2) new store layouts are bringing customers back into the store to buy stuff at full price; and (3) the signs of a turnaround could attract a top CEO sometime before the holiday season, or lead to the appointment of an internal candidate who has been leading the chain's turnaround.
Competitor Not to Own: Aeropostale (ARO) -- ugly balance sheet, ugly sales trends. If teens are choosing ANF and AEO, the odd chain out is ARO.
Target (TGT): Perhaps the most compelling buy among this group. First, Target is out-executing Wal-Mart (WMT) in terms of sales, margins, profits and telling its story to the investment community. Besides that, there are key fundamental drivers that excite me: (1) the company's lucrative apparel business is firing on all cylinders -- very impressed by what has been in the stores the past six months; (2) the company's food business, already doing OK, is about to kick it up a notch over the next 12 months as execs re-do layouts and bolster the number of organics on offer; and (3) I think Target operationally is giving its customers more reasons to splurge due to better-arranged stores and interesting items you normally wouldn't see on the sales floor (especially in organics).
Competitor Not to Own: Wal-Mart ¿ the ultimate show-me stock.