The consumer spending on food is not likely to fluctuate drastically, the level of spending on optional purchases like beauty care, cosmetics, electronics and specific foods, depends on the economic conditions (employment, wages, inflation, interest rates and consumer confidence) of the consumer. Higher levels of consumer confidence mean, consumers are more likely to increase their spending on optional purchases and big-ticket purchases and the likelihood of using credit to make purchases.

Historically low unemployment rates, rising incomes and low inflation contributed to strong consumer activity in Canada and United States, lately. Continued growth friendly environment and the initiatives to push growth rates higher have all yielded steady improvement in employment rates and incomes. After almost two decades, US consumer sentiment was close to 100 in 2018, from 2015 it stayed above 90 and it is showing strong consistency between 95 to 100 in the past one year or so. The improved economic conditions have brought new enthusiasm to consumer activity.

Top Picks to capture the growth in consumer products

Consumer product companies (3)

Canada has seen unemployment rate declining from around 7 percent in 2016 to 5.8 percent in February of 2018. From around 5 percent in 2016, United States unemployment rate declined to 4.1 percent in February 2018.

The positive economic conditions that have consistently increased consumer spending in United States and Canada in the past few years has enlarged effective consumer products company’s revenues in a big way. Experts at Stockchase have selected well managed consumer product companies with bold strategies as their Top Picks.

Michael Simpson, CFA, senior vice-president at Sentry Investments recommends Allergan PLC. (AGN-N),

“They are the maker of Botox.  They have a drug for dry eye syndrome that will come off patent but his analysis of the case for losing all revenue from the drug has them still doing well.  They have a good drug pipeline.  (Analysts’ target: $225.00).”

Erin Gibbs, vice-president at S&P Global Market Intelligence recommends Ulta Salon Cosmetics and Fragrance Inc. (ULTA-Q),

“They have their own line of beauty products.  They also have solon services within the store so they are creating an experience to attract the buyer into the store.  It is a unique play within the consumer space.  (Analysts’ target: $253.50).” 

Ryan Modesto, Managing Partner at 5i Research recommends Dollarama Inc. (DOL-T),

“A very shareholder friendly company. Last year they repurchased 5% of their shares. Since 2012, they’ve repurchased about 24%. Meanwhile the stock went up about 400% over the same period. Feels they have a long-term organic revenue growth stream behind them. They are also looking at purchasing on online bulk sales, giving them a discount. Dividend yield of 0.3%. (Analysts’ price target is $160.50.)”

Gradual increase in employment and wages is a great boon to the consumer product companies with sound product and service base. This is appropriate time to invest in consumer product companies, as they are the biggest beneficiaries of the employment and wage growth.

Top 14 Consumer Products Industry References