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Top Mega And Large Cap Consumer Defensive Stock Searches This Month
That’s some lasagna The Juice ate in Italy a few months back.
Looks delicious, right?
And, guess what? It tasted incredible too.
We’ll expand on the pasta theme in a minute, but first an update on a concern we expressed earlier this year.
The View From Corporate America
In May, The Juice used several data points to tell a scary story about at least a large swath of US consumers.
We noted that dollar stores, particularly Dollar Tree (DLTR) and Dollar General (DG), were performing better than larger retailers, Target (TGT) and Walmart (WMT).
At the time, we wrote about Walmart’s informal warning on its Q1 earnings conference call:
An interesting nugget from Walmart’s crappy earnings via CEO Doug McMillon on the company’s May 17th conference call:
… we knew that we were up against stimulus dollars from last year but the rate of inflation in food pulled more dollars away from GM than we expected, as customers needed to pay for the inflation in food.
Translation: Margins got hit because consumers shifted spending from general merchandise to groceries. And Walmart generates lower margins on groceries than general merchandise.
Fast forward to this week and Walmart made it official, lowering its Q2 and full-year guidance because of the spending shift McMillion pointed out in May.
The stock tanked on the news, taking TGT down a bit with it:
Source: Google Finance
This picture of discount retail, combined with declining personal savings and record household debt (fueled significantly by fast increasing credit card debt), led The Juice to sound the alarm on the state of at least some consumers.
Today’s we’re ringing the alarm bell extra hard.
Sure, enough people are doing well with money to bid rent and house prices to all-time highs, but more than a few are in relatively poor, if not outright bad financial shape.
Debt To The Rescue?
Thanks to inflation:
From a separate study, the data only gets worse:
A Tale Of Two Consumers
The Juice has been saying it all year long.
This is a two-faced economy.
On one hand, we’re probably in a technical reason (we’ll find out for sure when the Government releases Q2 GDP numbers on Thursday). On the other, unemployment remains low, housing prices remain outrageously high, and some consumers appear resilient, if not strong.
On the other, you have enough people turning to credit cards to bail themselves out of inflationary jams.
What It Means For Investors
If you have cash to invest, you are, presumably, one of the consumers in at least relatively good shape.
Walmart officially reports earnings on August 16th. Like an astute investor, The Juice will listen to the conference call and update you shortly thereafter.
If this warning is truly a headwind – a blip on the radar screen of our economic lives – and Walmart’s 49-year streak of increasing its dividend will remain intact, shares of the company’s stock might be more attractive than they have been in a while.
Italy’s Funny, But Brilliant Inflation Fighter
Last month, The Juice looked at inflation rates from around the world.
In the shell of a nut, they’re bad.
In Italy, the inflation rate in Q1/2022 was nearly 20 times worse than it was in Q1/2000.
At the moment, Italian inflation stands at 8%, just shy of America’s 9.1% annual increase. That’s the highest number in Italy since 1986.
In addition to a 200 euro cost-of-living bonus for some Italians, the government is working on a plan that would reduce the country’s sales tax on items such as meat and fish and eliminate it entirely on staples.
Topping that list – you guessed it – bread and pasta.
Not bad, especially for a government in crisis, with the recent resignation of Prime Minister Mario Draghi.
The Bottom Line: Inflation can bring a world of hurt to consumers already fighting to get by. If you’re in this camp, the last thing you want to do is take on credit card debt, particularly with interest rates so high.
Creditcards.com puts the average credit card interest rate at 17.46%, as of July 20th. Some analysts think it’ll get as high as a record 19% by year’s end.
At the current 17.46%, it would take you 5 years and 3 months to pay off a $5,000 balance making the minimum payment of roughly $122. In this scenario, you’d be on the hook for $2,632 in interest.
Now imagine not having to make that minimum payment each month.
Imagine investing it.
$122 invested monthly at a 6% rate of return magically turns into $8,647 after 5 years.
Almost as satisfying as a piece of lasagna in Rome or a bowl of spaghetti and meatballs during Sunday dinner at Nonna’s house.
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