Ten Winners For the New Consumer - Barron's

America's wild spending binge may be over, but the shift to frugality has been pushed too far. Barron's picks ten companies that stand to benefit as consumers seek a new middle ground and loosen their purse strings.

1) Amazon (AMZN): The company wins for its discount pricing, comparison shopping and the convenience of shopping from home. Amazon has defied the fall in retail sales, with a 24% jump in Q1 profit and an 18% rise in revenue. With online retail sales expected to grow, the company has plenty of room to expand.

2) Apple (AAPL): Innovation is hard-wired into the company, which keeps rolling out successful new products like the iPod and iPhone. Sales have grown an average 32% annually in the past five years, the company has no debt and the stock has risen over 1,700% in the past six years. There's upside potential in the smartphone market and for Mac computers.

3) Bed Bath & Beyond (BBBY): Low prices and plenty of merchandise keep consumers coming back to Bed Bath & Beyond stores, and management plans to open another 400 stores. The company has no debt, trades at a discount to rivals and should see profitability rise from the liquidation of former competitor Linens 'N Things.

4) Chipotle Mexican Grill (CMG): The restaurant chain has more expensive food than McDonald's (MCD) but its 'food with integrity' message will resonate with health-conscious Americans. The company has no debt and plans to continue a slow and steady expansion strategy.

5) J. Crew Group (JCG): J.Crew delivers a better retail experience than some cheaper rivals, and its website draws 80M visits a year. The company beat Q1 guidance and forecast better-than-expected operating earnings. Management is committed to staying in touch and relevant as consumer behavior changes.

6) Nike (NKE): Over 60% of the company's sales are overseas, where demand for Nike products is growing and could reach double-digits in Asia. The company is also gaining market share at a time when rivals are struggling. It has $2.6B in cash, little debt and yields a 1.8% annual dividend.

7) Safeway (SWY): The grocery chain has renovated stores, and added organic produce and mood-lighting. "It was the wrong strategy for the current market," analyst Edward Kelly points out, "but not necessarily the wrong strategy for the long term." Safeway understands consumers want healthier choices at non-extravagant prices. Margins should rise as the remodeling project ends.

8) Target (TGT): The company wins for 'cheap chic' and discretionary goods, which account for 60% of profits. Rival Wal-Mart (WMT) has gotten a boost from the recession, but in the long-term Target will attract consumers willing to pay a little more for greater value.

9) Toyota (TM): Automakers are risky bets, but there are signs that the industry is beginning to recover. Toyota offers a wide range of stylish, affordable cars, including the popular Prius hybrid. The firm is a logical replacement for GM in the Dow Jones Industrial Average.

10) Urban Outfitters (URBN): The company has carved out a well-defined niche with young shoppers, selling moderately priced clothing and home furnishings to consumers between 18 and 30. The company has fewer than 300 stores and hasn't saturated the market.

Comments

[jsampson:]

hmm, some of these are good picks but geez any average investor could have come up with these companies. it seems as though all the sites are just saying the same old things as each other.

I can do much better then this on my own come on now, let's get down to making some real money here people! Where is some fast growth here? All of you say the same ole same ole...Is this the best we can look forward to? Let's pick up some steam this is the USA let's use some imagination thats whats built this great nation of ours. I know we can look deeper into some of these great companies out here just waiting to be found and deserving of attention!

May 31 09:58 AM

[patruccisam:]

Isilon (ISLN) $2.75
If you can look out 12-18 months, take a look at Isilon. You wouldn't
buy it on current fundamentals. New products, management changes, insider buying. Like Gillette once you have the handle
you keep buying the blades. Company does unstructuctured data
storage for media, oil, life sciences,space, etc. Check out their web site isilon.com. FWIW $1.25/sh in cash

May 31 11:50 AM

[Pauly B:]

I think I will wait before I invest thank you until a couple of earning cycles to see where these companies are.

May 31 12:58 PM

[Market Sniper:]

Barrons? almost as bad as the Wall Street Urinal. Rah rah publication hyping stock BUYS. Do NOT get suckered into this! Eve these companies will get hit as the American consumer desperately struggles to repair his tattered balance sheet. Retrenchment is the by-word as he "gets small." We are seeing a massive shift in perceiptions here. The same old same old will not work anymore. Now you MUST start thinking outside the box. Something Barrons and The Urinal are incapable of doing.

May 31 02:24 PM

[JamesApple:]

Short Research In Motion put $34 August 2009

It is almost a sure bet Rim stock is diving big time this year.

May 31 03:56 PM

[Windsun33:]

Isn't Barrons the same one where their pans did better than their picks YTD?

Jun 01 07:23 AM

[Obamitall:]

Toyota-"stylish, affordable cars"? Car styles overlap from all the producers, domestic or foreign. From 50 feet away the profiles are identical. Wind tunnels rule designs. But the bias in the drive-by press goes on and on. The old templates of reporting don't change.
AMZN and AAPL look pretty good.

Jun 01 08:23 AM

[RiskReturnO...:]

A typical individual investor can't really benefit from this type of information, unless they have the know-how (and maybe some luck) to pick 1-2 from the list of ten.

If they buy all ten stocks, then the basket will likely track the sector ETF for Consumer Discretionary (XLY) pretty closely, as one bad story can pull down the results of the other nine.

Personally, a covered call strategy with XLY (perhaps selling LEAP calls at 10%-15% out of money strike) could beat this basket in total return, as you capture significant portion of the total return from call premiums.

Jun 01 06:01 PM

[Optionsforme:]

Amazon is a good buy here? Pay a PE of 53 when the consumer spending is slowing and unemployment rising, great advice. They won't release kindle numbers, they would only say its in the investment phase, shady company and accounting.

Jun 01 11:54 PM

[EJL:]

Nice call! Although I'm not sure you know what you are doing here. If you short a put, you would be making a bullish call on the stock, collecting the premium and hoping the stock stays higher so the put expires worthless. But I know you think RIMM is going to zero, so I'm betting you just don't have a clue what you are talking about and doing with options. This can be very hazardous to your pocketbook.


On May 31 03:56 PM JamesApple wrote:

> Short Research In Motion put $34 August 2009
>
> It is almost a sure bet Rim stock is diving big time this year.

Jul 01 10:41 AM