America’s S&P 500 index of the country’s largest corporations fell by 4.3% in October. That left many investors wondering whether the party for equities over the past two years was finally over. For the time being, at least, it seems not. The index quickly bounced back and has been making new highs ever since. Among the shares that have been recovering quickest are those that benefit when US consumers are feeling confident. For investors, these consumer-focused stocks could offer a way of playing the improving health of the US economy.
Why are US consumers feeling confident?
A recent survey by Thomson Reuters and the University of Michigan found that US consumer confidence grew for the third month in a row in October. It’s now at its highest level since July 2007 as a result of improved personal finances and a more favorable outlook for the overall economy.
Contributing to that upswing in sentiment is the fact that the price of oil has slumped from around $92 to $75 per barrel over the past three months. That has seriously dented valuations in the Oil & Gas sector - last week ExxonMobil ceded its position as America’s second most valuable company to Microsoft (the first time that’s happened in 10 years). But according to analysts, low oil prices (caused by a glut of supply) are stimulating the US economy and putting more money into the pockets of consumers as a result of lower prices at the pump.
All this is great news for consumer oriented sectors. Take a look at US sector performances over the past three months and it’s clear where investor funds are flowing: Food and Drug Retail has outperformed the broader US market by 4.9%. By contrast, Oil & Gas has undershot by 29.1%.
Finding strong stocks
So which US consumer-focused stocks offer an opportunity to play this improving economic health? We filtered the US markets using Stockopedia.com’s screener to isolate consumer defensive and consumer cyclical stocks with a StockRank of more than 90 out of 100. StockRanks are calculated by scoring and then ranking every company in the market based on their financial quality, valuation and price and earnings momentum. Each of those factors is scored using a range of criteria that’s combined into a single StockRank number - you can…
