The domestic economic situation has improved from the height of the financial crisis. In time, I believe we can achieve a very respectable rate of economic growth.
However, that doesn’t mean I think that Americans are once again poised to spend their hard-earned funds like a sailor on leave or that this is the time to bet on higher-end retailers, restaurants or homebuilders.
In fact, my favorite sector in this market right now is the discount retail industry.
The massive headwinds that the economy and stock markets faced, particularly during the first part of 2009, had an enormous impact on Americans.
My primary concern is that many of us will remain much more conservative in our spending — and considerably more aggressive in our saving going forward as a direct result of those hardships.
If I am on the mark with my macro speculation, entities that sell consumer goods at low prices and that have a large number of potential customers could do very well financially.
Which companies attract my interest?
My sentiment is that stores like Target (TGT), Wal-Mart (WMT) and other reputable chains known for offering bargains, like Dollar Tree (DLTR), could do well on the earnings front in the next several years.
Each of these companies not only carries a diverse inventory at low prices but each is also accessible to a large number of Americans — and each has deep pockets with which to market the products on their shelves.
There are some other things that interest me as well about this group.
For example, earnings data reveal that Target has beaten estimates the last four quarters straight, as has Wal-Mart and Dollar Tree.
My speculation is that the recent slew of EPS beats could draw a little institutional interest, and perhaps attract players looking to place their hard-earned funds in companies that are performing well financially.
Such institutional attention could drive these stock prices higher.
In short, my gut tells me that the domestic economy will mount a hearty come back over time and that the equity markets may fare well in the years — and many decades — to come, too.
But at the moment — because overall I expect consumers to remain conservative with respect to their spending — my favorite space in this market by a fairly significant margin is discount retail.
I like Target, Wal-Mart and Dollar Tree: three large, well-known, well-respected names.
About the Author: Glenn Curtis
In the mid-1990s, Glenn Curtis worked as an equity analyst for a regional broker in New Jersey. From there he worked for several high-profile print and Web publications, primarily as a financial writer providing both stock market commentary and educational content. He has previously held his series 6,7,24 and 63 licenses. Click Here
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