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Sam Stovall's Outlook For The Consumer Discretionary Sector - YouTube
Channel: TD Ameritrade Network
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to play the re opening in the
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recovery trade consumer
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discretionary MYGN. It seemed
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like a segment to do that, But
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see if our AK cautions against
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it. Sam Stovall joins US chief
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investment strategist at CFR
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AZO Sam, you guys, probably a
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bit of a cautionary note here
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on the consumer discretionary
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group, and for many, that might
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be surprising. Given we look
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around, we see people consuming
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more again in a more normal
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fashion. So wh. Well, Oliver.
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It really is sort of a near
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term timing kind of a call. Our
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feeling is that the companies
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were experiencing elevated
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costs, which could end up
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leading to lower profit margins.
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Commodity costs, wage pressures,
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transportation and freight
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rates, etcetera. Ah, lot of
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these factors we think are
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going to be pressuring. The
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profit margins. Also fed chair
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Pal said that it's very
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unlikely that we're gonna have
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additional unemployment
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payments come into the system
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passed the September period.
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And so maybe that's going to
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cause consumers to say You know
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what? I'll hold off on a lot of
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my spending, because a lot of
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the expectation has already
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been built. Into share prices.
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Growth is expected to be up
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about 39% in terms of earnings
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for 2021. Yet it's trading at
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an 81% premium to its long term
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average PE ratio on forward 12
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month results . A lot of
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optimism is already built into
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this sector. And then finally,
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I looked to relative strength
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and on a rolling nine month
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relative strength, this group
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has fallen to join three other
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sectors in the weaker camp. So
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Sam, the inflationary impulse,
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a XYZ-- being a part of this
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and what we've seen his
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company's do look to bring
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wages higher. Get those
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employees back in Tripoli being
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Converse standout example of
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this CFO is but on here many
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times saying that they've
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modeled this in and they have.
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Prepared and are ready to
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absorb those costs or
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potentially pass them through.
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I mean, they don't really view
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it is a risk. Of course, that's
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the CFO talking, and obviously
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the stock is important, but.
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What about the potential? Just
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tow charged extra buck for
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block. Well, That's certainly a
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possibility. And this call
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really is more to do with the
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sector than the company.
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Chipotle A. Actually we have to
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assign the sector right up to a
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particular company. So I said.
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Let me look for the company
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that is the most unimpressive
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in terms of the sector. So I
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looked for that one that is
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rank hold from our qualitative
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analyst hold in terms of our
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quantitative analyst in terms
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of. A quality ranking of B plus,
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meaning it's right smack in the
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middle s O basically looking
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for a stock that really
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represents a market waiting, So
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our belief is that the consumer
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discretionary group is not
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likely to lead in this
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seasonally soft sell in May
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period s O stick with what
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you've got, but we really don't
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thin. That now it we're
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expecting to see any kind of a
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sharp ramp up. So this is a zoo
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consciously address Big Growth.
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It's coming for the bottom
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line. I mean earnings here
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supposed to really. Last off
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for consumers, Sam and when I
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hear a lot is that while
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earnings were gonna keep this
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market going eyes it not gonna
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be enough. The bottom line
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Growth her Well, I think that
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the analysts have been
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forecasting. We're likely to
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see strong earnings growth and
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as a result, we've have a 40%
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premium recently on the P E of
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the S and P 500 relative to its
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20 year average. So we're
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saying we're awful lot of
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optimism is built into. The
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market as a whole. Last Friday,
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we ended up with weaker than
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anticipated employment data, so
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I think that might be causing
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some analysts to say You know
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what? We wonder if we're a bit
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too optimistic with what is
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likely to be occurring over the
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next 36. Plus months? Yes maybe
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the Fed will continue to dig in
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its heels on the short term
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rates. Maybe the government now
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has. Additional reason to add
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to stimulus, But all that's
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really going to do is likely
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ramp up the prospects for
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inflation, which would not be
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good for these kind of
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companies. All right, so thing
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about the valuation metrics
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here. Just hit me with that 11
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more time because it seems like
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the premium being charged for
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these consumer stocks is, uh,
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shockingly high. How does it
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compare to some of the tech
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stuff now that there's been a
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little bit of a wipe out there
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Well, believe it or not, Tech
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is actually looking a lot
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better when you look to the to
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the earnings picture, So you
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know, In a sense, it's consumer
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discretionary is currently
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trading at an 81% premium. Two.
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It's 20 year average PE based
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on forward 12 month earnings,
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The market itself is in the mid
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thirties and was as high as 40
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times on technology is actually,
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um, even old, slightly more
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attractive than the market
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itself. So we're not looking at
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a repeat of 1999 when we
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thought that. Tech was cheap,
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treating it 60 times forward
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earnings. I think what we're
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seeing now is the shakeout in
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Tech. It's the only one right
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now. That is trading below its
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50 day moving average, and even
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the current level versus it's
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200 Day is only about 6.5% away,
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so minor pullback is likely. I
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think before we see some sort
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of a bounce. Sam and four
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discretionary again, a kind of
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using police sort of as a proxy
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for this group, But I know
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you're talking about this
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sector overall. Should we
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expect this to be. A kind of
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cell calls, trade or by put's
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trade is it just stopped going
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up or do we really see
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meaningful downside to get in
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line with some of the
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historical averages that you're
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saying for evaluations? Well,
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historically, the market after
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recording such a very strong
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start to the year the S and P
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equal weight 500 was up more
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than 16% The third strongest
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sense. The index was introduced
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by S and P in 1990 in the top
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10 times in which that has
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occurred. The market fell about
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1.5% on average in May
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declinin. 60-40 scent of the
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time and then sort of treading
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water like I like to say,
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mapping out the design on
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Charlie Brown shirt until
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September before then advancing
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sharply higher by the end of
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the year, So I would tend to
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say that you know, this is
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something where, you know,
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really don't expect a lot of
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upside potential over the next
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several months. But then sort
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of keeping your powder dry and
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adding toe holdings as the year
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progresses. Okay, Sam, still
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ball really good breakdown here
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of the sector. Very thorough,
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thanks for the details on the
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research. My pleasure, Oliver.
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Good to talk to you again. You
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got it. Chief Investment
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officer at sea, if all right
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with cautionary note on the
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consumer discretionary front,
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even using
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