Wall Street may be too pessimistic on consumer stocks, but don't buy them, says Morgan Stanley
By Steve Goldstein
Wall Street investors really aren't sure about the health of the U.S. consumer.
"In our conversations with clients over the last week, we've continued to field questions on the state of the consumer," said strategists at Morgan Stanley led by Mike Wilson, chief U.S. equity strategist. "An increasing number of investors are concerned about the health of the consumer deteriorating further as savings are depleted and price levels continue to remain elevated."
The firm's own travel and leisure conference last week, however, showed demand actually a bit better than expected, although there was a split between companies serving high-end consumers and low-end. For instance, Marriott International (MAR) and Hyatt Hotels (H), skewed to the higher end, offered positive commentary, as were cruise lines, while companies exposed to lower-income households were "less constructive."
"Our view is that consumer data remains mixed, but there are still several pockets of durability from a household spending standpoint," they said.
Earnings revisions among consumer discretionary stocks were mixed as well - positive for hotels and restaurants and leisure products, for instance, but negative for autos and luxury goods.
All that said, while there are pockets of durability and the group is under-owned, the strategists said the sector is historically a persistent later cycle underperformer as household spending slows.
"Thus, we would advise against adding exposure to a broad set of consumer cyclicals and would instead be very selective within the space, staying up the quality curve and focusing on consumer services stocks that are executing on operational efficiency," they said.
-Steve Goldstein
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06-10-24 0601ET
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