The bearish case on consumer-related stocks is so very seductive. The consumer is in heavy debt, confidence is shrinking, the stocks have had enormous rallies, and the Fed's easy money is the only thing standing between shoppers and bankruptcy. Add to that list the desultory expectations for the group during the coming earnings season, and shorting the consumer names becomes an almost irresistible proposition for the shorts.
That seductive negative assessment is exactly what consumer stock bulls like Ryan Detrick, sr. technical strategist of Schaeffer's Investment Research, likes to see. "We like to buy expectations and not prices," he says. For all of the reasons listed above Wall Street's expectations for consumer stocks are rock bottom. As a bullish contrarian, Detrick loves nothing better than stocks making new highs in the face of skepticism.
In the attached video, he offers four ways to bet on the consumer and against the bears.
SPDR S&P Retail (XRT)
An ETF containing Best Buy (BBY), Groupon (GRPN) and a whole bunch of consumer cyclicals is the quintessential Detrick pick. The fundamental picture for the group is "not great if you look at it from way up high but it's all about expectations."
Green Mountain Coffee Roasters (GMCR)
I think K-cups generate undrinkable bilge water passing as coffee despite more closely resembling thin gruel served to orphans in a Dickens novel. Despite that and accusations of accounting irregularities last summer, GMCR stock has been roasting shorts, more than tripling since last July.
Think GMCR only without the terrible coffee. Huge short base, lots of puts being added, and horrendous expectations even as the stock performs admirably.
Like most of the homebuilding sector Lennar has come roaring off its lows in the face of massive negativity. Despite the recent gains Detrick points out that Lennar and the homebuilders in general are trading around half of the highs they hit in 2008.
"Bigger picture we still think a little too much negativity towards these housing stocks, still even after this rally and that's what like to see," he says.
- Investment & Company Information