You know things are really getting bad out there when the top story in The Wall Street Journal says the Fed is really/actually/finally "moving closer to taking new steps to spur activity and hiring." So now that Central Bankers are as scared and skeptical as the rest of the us, it seems there's no one left to take the other side of that trade and stand up for consumer stocks.
No one, that is, except Ryan Detrick, Senior Technical Strategist at Schaeffer's Investment Research, who is sticking with the sector that has served them well.
"We all know the headlines: jobs aren't coming back nearly as much as we want; consumer confidence is low. Yet from a contrarian point of view, if you look at the price action, a lot of these restaurants and retailers and housing names, those are the ones leading us higher," Detrick says in the attached video.
As he sees it, whether it's the past couple years or the past couple months, consumer stocks have been leading the market and he doesn't think that trend is over. For him, the perfect stock is one that's hitting new highs and gaining skeptics at the same time.
"As they go higher, we see increasing put buying, increasing short interest," he says. "But that negativity and skepticism all can unwind and push them higher."
Take Visa (V). He says the $80 billion credit card data processing giant hit an all-time high July 16 and trades at 24.5 times this year's estimated earnings.
"You can look at the P/E all you want, but we look at expectations," Detrick explains, pointing out that short interest has increased 38% in a month and nearly 100% since May. "The shorts are all over this one. As it goes higher, people bet against it, and we love to see that."
Other consumer names Detrick likes and says share a similar appeal as Visa include: paint retailer Sherwin Williams (SHW), "a lot of room for late upgrades"; discount retailer Family Dollar (FDO), "increasing shorts, lots of puts"; as well as well as a pair of home builders, Ryland (RYL) and Lennar (LEN).
"We know home builders (XHB) have had a great rally, but we just continue to see puts coming in — a lot of shorts coming in," he says, reiterating his favorite theme. While he concedes that home builders "may be a little bit extended" having gained 75% since October and hitting an all-time high in May, his bullishness for them is simple and unchecked. "Buy any and all pullbacks."
- The Wall Street Journal