Analysis: US consumer stocks cheer investors ahead of holidays

Sun Nov 18, 2012 9:01am EST
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By Caroline Valetkevitch

NEW YORK (Reuters) - Eye-catching quarterly results by Target, Home Depot and other big U.S. consumer names were among the bright spots in a third quarter that was disappointing for many other companies.

Major sellers of discretionary goods posted upside earnings surprises at the tail-end of the earnings season. This helped the S&P 500 stock index end the quarter about even from a year earlier. Analysts had expected companies in the index to post the first quarterly earnings decline in three years.

Consumer discretionary stocks show signs of strength that much of the S&P 500 does not - double-digit year-over-year growth, a high percentage of companies beating analyst forecasts, and strong growth projections for coming quarters.

"Consumer sentiment has been improving steadily and this is affecting retailers to some extent, and retailers are also getting a boost from consumers getting their own fiscal matters in order," said Bryant Evans, investment advisor and portfolio manager at Cozad Asset Management, in Champaign, Illinois.

The sector's strength is a hopeful sign for the U.S. economy although it does not mean U.S. growth is roaring. Uncertainty about Washington's wrangling over the fiscal cliff, and weak demand worldwide, could change the U.S. outlook in a hurry.

Still, reduced exposure to Europe and other weak overseas markets helped sellers of electronics and home improvement goods outperform the rest of the equity market.

With results in from most companies, S&P consumer discretionary sector earnings are up 12.1 percent from a year ago, the only sector boasting double-digit growth.

Strong consumer sentiment in recent months has boosted retail sales. U.S. consumer confidence rose last month to its highest level since February 2008, according to data from the Conference Board.   Continued...