Whew, The U.S. Economy Remains Strong. And So Does Our Investment Thesis There.

Highlights

This post provides additional information or updates to our existing investment strategy. Most recent post(s):

This macroeconomic view provides the top-down perspective for our consumer discretionary sector investment strategy.

  • U.S. Q2 economic growth much better than previously estimated 
  • Gasoline prices remain low
  • Food service sales are in good shape

Where appropriate for clients’ risk tolerance and objectives, we continue to add consumer discretionary holdings in the U.S. (while ensuring a portfolio doesn’t become too concentrated in this sector).

Research & Analysis

1) U.S. GDP

 

The U.S. economy proved its resiliency in Q2, growing 3.6% on an annualized basis.  This second estimate was revised up quite a bit from the advance estimate (released at the end of July).  The first estimate of 2.3% made us a little nervous as it wasn’t what we were expecting after a poor Q1. With the better second estimate we remain confident in our view that the U.S. provides one of the best investment opportunities.

 

Here’s the press release from the Bureau of Economic Analysis website:

 

Source: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

 

2) Gasoline Prices

 

Prices below $2.70/gallon in 2015 means more money for discretionary spending.

 

Source: US. Energy Information Administration, US Regular Conventional Gas Price [GASREGCOVW], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/GASREGCOVW/, September 4, 2015.

 

2) Retail Sales

 

A nice rebound in food services spending in July (as we expected) suggests our investment thesis for this sector remains sound.

 

Source: US. Bureau of the Census, Retail Sales: Total (Excluding Food Services) [RSXFS], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/RSXFS/, September 4, 2015.

US. Bureau of the Census, Retail Trade: Food Services and Drinking Places [RSFSDPN], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/RSFSDPN/, September 4, 2015.

Current Strategy

Medium-term Investment Strategy

  • BUY restaurant companies with vast majority of revenue in the US.

Triggers for Strategy Change

  • Higher oil and thus gasoline prices.
  • Changes in spending/saving habits of the US consumer.

Categories

Type: Investment Strategy Thesis

Geography: US

Sector: Retail

Sub-sector: Restaurants

Area(s) of Analysis: U.S. GDP, U.S. economic growth, gasoline prices, retail spending, food services spending, food services revenue, EIA

 

 

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