- American consumers averaged $98 in spending in May.
- That estimate is $10 higher than April's average and is the highest amount reported for May since 2008.
- We screened for high sales growth quarter-over-quarter and stocks moving above their averages.
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.
1. G-III Apparel Group, Ltd. (GIII, Kapitall snapshot): 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.
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, Kapitall snapshot): 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Kapitall is a team of analysts. This article was written by Mary-Lynn Cesar, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.