Money Managers Bullish on Consumer Cyclical Stocks

Tuesday, 17 Apr 2012 07:44 AM

By Dan Weil

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After taking it hard on the chin during last fall’s market selloff, consumer cyclical stocks are coming back with a vengeance.

These shares, also known as consumer discretionary stocks, include retailers and auto companies. Their fortunes go up and down with the economy.

And now the economy’s looking a little brighter, after expanding 3 percent in the fourth quarter.

Editor's Note: Wall Street Insider: The System Is Rigged

The news has improved on the consumer side. Real consumer spending increased more than 2 percent last year. And Chris Christopher, senior principal economist at IHS Global Insight, tells The New York Times that spending will likely rise another 2.1 percent this year.

So it’s no great surprise that mutual funds focusing on consumer cyclical stocks soared 18 percent on average in the first quarter.

With the outlook for consumer spending rosy, many money managers anticipate further stock gains.

“We could see 20 percent improvement in consumer discretionary stocks over approximately the next year,” Robert Straus, manager of the ICON Consumer Discretionary fund, tells The Times.

One of Strauss’ favorite stocks is TJX, owner of T.J. Maxx and Marshalls. TJX earnings can surge at a 12 percent annual rate over the next five years, Straus says.

Not everyone is so bullish on the sector. “There are still several reasons for caution,” writes R.J. Hottovy of Morningstar.

“We anticipate reduced margin expansion from consumer cyclical firms this year due to price competition, infrastructure and supply chain investments, and persistent raw material inflation.”

Editor's Note: Wall Street Insider: The System Is Rigged





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