A Consumer Loyalty Portfolio

As persistent high unemployment and general economic malaise continue to threaten or slow down any chance of a full recovery, the American consumer is anxious. Consumer confidence is once again trending lower. For September, the index that tracks how consumers "feel" about the spending and economy fell to 48.5, the lowest since February. Analysts now predict a slow and uphill climb for the U.S. economy, with trivial GDP growth going forward for the next few years. With such minor growth, consumers will maintain their current spending patterns. However, there are ways to profit from the new American consumer.

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Brand Loyalty

Today's economic climate frequently forces managers to concentrate on short-term problems. Achieving same-store sales, for example, becomes a top priority. However, in doing so, many firms have lost focus on creating brand loyalty. Companies that are able to develop an impenetrable bond with their user audiences have been succeeding. Even as the economy continues to slump, many consumers are finding cash for small luxuries. In this "new normal", consumer and brand loyalty have become even more important as products have become more commoditized and lack differentiation. Brand loyalty is what has kept people buying Toyotas (NYSE: TM) in the face of crisis versus boycotting the brand, as many are doing with BP (NYSE: BP).

Consulting group Brand Keys recently polled 35,000 consumers about 501 of the biggest brands. Of the top 50 products, nearly 75% were found in the cosmetics, technology or retail sectors. Researchers concluded that the emotional correlation created with these product categories impacted self image, changed the way people live and improved their quality of life. If the economy continues to plod along, these brand loyalty winners will maintain their edge. By focusing on the top winners on Brand Keys' list, investors can profit from the shift.

Investing In The Consumer Loyalty Portfolio

While some companies profiled on Brand Keys' list are private, such as Dunkin' Donuts, many are publicly traded. While consumer spending is stagnant at best, odds are that any dollars spent will go to these firms. Here are some of the better ideas from the list:

It's no shock that Apple (Nasdaq: APPL) took the top spot in Brand Keys' report. "The Cult of Mac" is well known, and the iPhone is the must-have tech gadget. With new successful product launches such as the iPad, the iPod Nano and Apple TV, the company's shares have climbed about 37.5% year to date. Despite the lack of consumer confidence, patrons are still willing to plunk down the cash and purchase Apple's tech products.

Even with the rise of craft beers such as Boston Beer's (NYSE: SAM) Samuel Adams, consumers are most loyal to Anheuser-Busch InBev's (NYSE: BUD) Budweiser. With improving alcohol sales in North America and Anheuser-Busch gaining exclusivity rights with the NFL next season, shares could be lifted higher.

Leading both the adult and children's cereal categories, General Mills (NYSE: GIS) is a safe pick in the current volatile market environment. If the economy continues to be rocky, the stock's 3% dividend yield will help buoy a portfolio. Similarly, many of Procter & Gamble's (NYSE: PG) brands lead their product categories.

Finally, if consumers decide to let their hair down and take a vacation, they prefer to fly JetBlue Airways (Nasdaq: JBLU) and stay at Choice Hotels' (NYSE: CHH) Comfort Inns.

Bottom Line

As uncertainty still plagues the economy, consumers have been reluctant to spend. Firms that have created real brand loyalty have been able to differentiate themselves from the rest of the pack. These companies represent the leaders of the new normal in consumer spending. By choosing these firms, investors can position portfolios to profit from uncertain consumers. (For related reading, see Analyzing Retail Stocks.)

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