Confidence Inspires Consumer Spending

By Aryeh Katz | June 11, 2009 AAA

There's a lot at stake when those monthly consumer confidence numbers are posted. For many consumers, they act both as a barometer and a guide as to when discretionary items should be purchased. It stands to reason that, when the consumer is confident, major purchases and nonessential spending are much higher.

That said, if the economy has begun to turn up, these names from the consumer cyclical sector are likely to see gains.

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Callaway Golf Company (NYSE:ELY) is an excellent example of a business that thrives when the overall business environment is booming. Currently, the stock is flashing value signs, offering some very strong fundamentals to interested investors. The shares trade with a reasonable annual dividend yield of 3.68% and sport a P/E of 14.66. And institutions love this company. Ninety five percent of the outstanding float is owned by professionals!

Price to Book Value is a Key Metric of Value
Callaway's book value is currently greater than its market cap (P/B is just 0.84), and the stock trades at a mere 0.48-times trailing sales. Callaway manufactures golf clubs and golf accessories.

LaCrosse Footwear Inc. (Nasdaq:BOOT) is the maker of rough and ready footwear for the outdoor and work markets, including specialized items for law enforcement, mining, oil and gas, and military servicemen. The company's stock is up over 40% since bottoming in March, and still pays investors a dividend yield of about 5%. LaCrosse also trades with a near-even P/B of 1.04 times, and at less than half the value of its trailing sales (P/S is 0.49).

LaCrosse recently completed a deal to acquire Environmentally Neutral Design Outdoor, Inc., a specialty running wear manufacturer.

The World's Biggest Appliance Maker
Whirlpool Corporation (NYSE:WHR) is a household American name with a history that stretches back nearly a century, to its beginnings in 1911 with the Upton Machine Company in St. Joseph, Michigan. Today, the company is best known for marketing and distributing big name appliance brands such as Maytag, KitchenAid, Jenn-Air, Admiral, Amana and Inglis. Whirlpool stock trades with a 4% yield and a P/E multiple of just 8.30 times.

Perhaps the most astonishing fact is that the company's shares have risen over 100% in just the last two months. Company President Jeff Fettig said that Whirlpool has recently changed the way it designs and builds its refrigerators, washing machines and other appliances, resulting in "a permanently lower... cost structure [and] improving profit margins." Apparently, investors believed him.

The Wrap:
When consumers feel confident about the economy and secure in their jobs, they spend. The above listed companies stand to profit nicely if the recession that devastated markets last year has abated, and the business cycle has turned. (Find out which catalysts can turn struggling stocks around in our related article Turnaround Stocks: U-Turn To High Returns.)

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