U.S. Consumer Discretionary Least Crowded in 25 Years
XLY•Sector view remains neutral, with selective preferences
Bernstein is nevertheless stopping short of turning broadly bullish. It recommends a neutral stance on the U.S. consumer sector, citing weak consumer sentiment and a sharp rise in U.S. trucking rates that could squeeze margins.
Larger firms may be shielded by existing freight contracts for the next six to nine months, it says, but smaller companies may have to absorb the blow from rising freight prices.
The analysts say hotels, resorts and cruise operators are less exposed to freight costs than many goods-based businesses. They also like apparel and off-price retail.
The report adds that the World Cup "goal fever" could produce unexpected swings in consumer spending patterns, potentially affecting sectors such as entertainment.
Dollar General DG.N, Dollarama DOL.TO, TJX TJX.N, Tapestry TPR.N, Marriott MAR.O, Hyatt H.N, Viking VIK.N, Walmart WMT.O, Dr Pepper KDP.O and Celsius CELH.O are among their preferred stocks.
Bernstein says consumer discretionary is at the lowest crowding level in over 25 years
U.S. consumer stocks have lagged the broader market over the past three months, but Bernstein says the selloff may be creating opportunities, especially in consumer discretionary.
The brokerage notes that investors have increasingly rotated into technology shares, leaving consumer names under-owned.
"Consumer stocks became a source of funds for this (tech) rally," writes Alexia Howard and other Bernstein analysts. "So now we have the U.S. Consumer Discretionary space sitting at the lowest crowding level that we have seen in over 25 years, which could make for some interesting investment opportunities."
