Fin - Breakout - US

How to Play the American Consumer Now: Budd Bugatch

Jeff Macke
Breakout

Looking for yet another way to play the almost-but-not-quite tapped out American consumer? How about some offbeat ways to take advantage of both the do-it-yourself trend and the desires of a populous that can no longer afford to leave home? Budd Bugatch, the retail analyst for Raymond James, suggests some off-the-beaten-path ideas for taking advantage of just those trends.

How far off the beaten path? I'm willing to wager you haven't given much, if any, thought to companies like Lumber Liquidators (LL). Sometimes opportunity lies in obscurity, and Bugatch thinks that's the case with LL. We tried off-camera to get him to take the bait on more traditional plays such as Lowe's (LOW) and Home Depot (HD), but Bugatch wouldn't bite. It's LL for him. He describes the stores as off-the-beaten path by design, taking advantage of a customer base willing to leave the big box store and save a little money, presumably even after gas prices are put into the mix. Lumber prices are hitting new lows as the housing data continue to come in just a rounding error away from "zero new homes." Like most retailers, LL is apt to pass some of those savings along to customers while also expanding their margins.

If you plan to literally file away these ideas, chances are you will do so in a product from Steelcase (SCS). The maker of ubiquitous file cases and other office furniture is a global operation, selling through both independent dealers and directly to customers. Before you yawn, note that SCS is up some 28 percent in the past 52 weeks and is trading at a stunning 69 times earnings. Clearly they're up to something in their Grand Rapids HQ. Whatever it is, Bugatch is a buyer.

Rounding out the list of the unexpected are two mattress makers: Temper-Pedic (TPX) has risen a stunning 100 percent in the past 52-weeks and more than 300 percent in the past five years. The company, of course, sells mattresses and pillows. Business is rocking as TPX is buying back shares and recently upped guidance for the year. In the "it's not dead, it's sleeping" camp is Bugatch's final pick, Select Comfort Sleep Systems (SCSS). For those who remember Select Comfort for its infomercials and former penny stock status, it may be best to sit or lay down for this next piece of information: SCSS is up 84 percent year-to-date and over 6,000 percent since the start of 2009.

To be uncomfortably candid, I wouldn't touch the shares of Select Comfort after a 66-hundred-fold gain with a 10-foot pole -- and my late father was once on the company's board. What's more, just thinking of chasing Temper-Pedic makes me want to take a nap. Of course I could be wrong and it takes two sides to make a trade. Bugatch has clearly done more research on the names than I have.

No disrespect is intended and, as always, I'm willing to change my mind if presented with a compelling counter view. Feel free to state your case in the comments below; as is my wont, I just may offer a response. You can also drop a line at Breakoutcrew@yahoo.com.

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