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Will May’s high consumer spending boost these consumer goods stocks’ sales?

By: Kapitall
Posted: 6/9/2014 10:17:00 AM
Referenced Stocks: SMA

By Mary-Lynn Cesar for Kapitall.

American consumers averaged $98 in spending in May, according to a  Gallup poll released this week. The spending estimate is $10 higher than April's average and is the highest amount reported for May since 2008. Daily consumer spending averaged $90 in May 2013. 

Memorial Day weekend spending drove the spike in last month's spending. Customers splashed out $134 a day on alcohol, barbecues, gasoline, gardening, and the like during the three-day weekend, resulting in the highest three-day average in six years. 

Gallup thinks that the gain in May's daily average may signal that the economy is improving. But the pollster notes that the change in spending between May and June will paint a better picture, considering that the average typically remains unchanged or decreases. 

The jump in daily consumer spending inspired us to look for investment opportunities among consumer goods stocks. We began with a universe of consumer goods stocks, excluding those belonging to the appliances, auto manufacturers, auto parts, business equipment, recreational vehicles, rubbers and plastics, and trucks and other vehicles industries. Gallup doesn't include home and vehicle purchases or monthly bills in its poll, so that's why we removed those industries from our initial group. 

Since the poll focuses on consumer spending, we decided to screen our group of stocks for those experiencing  high sales growth quarter-over-quarter, with an increase of 25% or higher . Then we screened that group for stocks that are  rallying above their 20-day simple moving average ( SMA ), 50-day SMA, and 200-day SMA . This shows that the stocks have upward momentum.

For our final screen, we looked for stocks that are  undervalued with a low price-to-sales (P/S) ratio  because, just like consumers, investors like a bargain, when possible. The P/S ratio compares a stock's price to what the company generates in revenue. If a stock has a P/S below 1, it can be considered undervalued. 

However, it's important to point out that the ratio doesn't factor in expenses or debt. Additionally, variation between industries is normal, so it's most useful when comparing similar companies or a company to the industry average. We screened for stocks with P/S ratios below 2, which means that their market caps aren't more than twice their annual sales. 

We were left with three stocks on our list. Do you think these consumer goods stocks will benefit from an increase in consumer spending?

Click on the interactive chart to view data over time. 

1. G-III Apparel Group, Ltd. ( GIII , Earnings , Analysts , Financials ): Designs, manufactures, imports, and markets a range of outerwear and sportswear apparel to retailers primarily in the United States. Market cap at $1.70B, most recent closing price at $82.76.

Sales growth quarter-over-quarter is 26.00%.

The stock is rallying 11.61% above its 20-day SMA, 12.41% above its 50-day SMA, and 26.20% above its 200-day SMA.

P/S at 1.16 vs. an industry average of 2.92.

2. Omega Protein Corp. ( OME , Earnings , Analysts , Financials ): Distributes fish meal and fish oil products in the United States. Market cap at $303.68M, most recent closing price at $14.53.

Sales growth quarter-over-quarter is 29.90%.

The stock is rallying 6.47% above its 20-day SMA, 14.87% above its 50-day SMA, and 26.32% above its 200-day SMA.

P/S at 1.16 vs. an industry average of 1.83.

3. Revlon, Inc. ( REV , Earnings , Analysts , Financials ): Engages in the manufacture, marketing, and sale of cosmetics, women's hair color, beauty tools, anti-perspirants/deodorants, fragrances, skincare, and other beauty care products. Market cap at $1.61B, most recent closing price at $30.77.

Sales growth quarter-over-quarter is 44.20%.

The stock is rallying 2.46% above its 20-day SMA, 8.51% above its 50-day SMA, and 19.21% above its 200-day SMA.

P/S at 0.98 vs. an industry average of 2.71.

(List by Mary-Lynn Cesar. Price-to-sales data sourced from Fidelity. Quarterly sales data sourced from Zacks Investment Research. All other data sourced from finviz.)

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.