TORONTO (Reuters) - While fear of the U.S. fiscal cliff promises to hold financial markets hostage at least to year-end, a surge in Black Friday shopping and a recovery in the U.S. housing market has Canadian investors looking to a few consumer-fed stocks for potential growth.
The retreat of the U.S. consumer during the Great Recession left shares of retailers, luxury goods producers, auto and appliance makers, home builders and others reeling on both sides of the border. But signs of improving confidence among shoppers could encourage a play on consumer spending, and Canadian strategists see an array of opportunities.
The No. 1 reason the U.S. consumer recovery has lagged the end of the recession is residential real estate, says Noah Blackstein, portfolio manager at Scotiabank’s Dynamic Funds.
With housing starts and sales hitting bottom and beginning to pick up in the United States, and at still-high levels in Canada, the tide has begun to turn.
“Real estate really matters to a lot of consumers. As residential real estate recovers, Americans are more confident in the value of their assets. And they’re also seeing the labor numbers improving as the housing market has a whole multiplier effect,” said Blackstein.
Black Friday sales provided a strong start to the holiday shopping season in Canada and the United States, though whether the surge will last is unclear. In New York, the National Retail Federation said sales for the four days from U.S. Thanksgiving to Sunday rose 12.8 percent from last year.
Gavin Graham, president at Graham Investment Strategy in Toronto, pointed to a few stock picks on both sides of the border that can tap into a U.S. housing recovery and its knock-on effect on furnishings, appliances and household.
While big-box home stores like Home Depot (HD.N) and Lowe’s (LOW.N) may seem obvious picks, he warns they have already regained strength, most recently in response to Hurricane Sandy. But niches remain.
“What we used to call ‘white goods’ -- Whirlpool (WHR.N) is one name. Where they’ve had fairly bad numbers but if there is indeed a pickup in demand for housing, then you are going to see a pickup in demand for washing machines, dryers and the like,” Graham said.
He also likes furniture makers such as Herman Miller Inc (MLHR.O), and mid-level retailers such as Macy’s Inc M.N in the United States and Canadian Tire Corp CTC.TO in Canada.
Defensively, he would keep money in discount retailers like Dollar Tree Inc (DLTR.O) and Dollarama Inc (DOL.TO) and in consumer staples like Proctor & Gamble Co (PG.N) and Kraft Foods Group Inc KRFT.O.
Both Blackstein and Graham also like the automakers, including General Motors Co (GM.N) and Ford Motor Co (F.N), predicting a rebound in car sales after years of consumer retrenchment left an aging fleet of vehicles.
“You’ll see car companies benefiting -- some has already been seen and more will come. New car purchases have been below trend line for an extended period of time for automobiles, we’ve had a long period of below-average auto sales, and that number could snap back for sure,” Blackstein said.
Paul Taylor, chief investment officer at BMO Harris Private Banking, sees some good stock picks beyond the big names in retailing and consumer goods.
“There are a few names within the discretionaries that may have a little more torque to them,” said Taylor, nodding to Gildan Activewear Inc (GIL.TO), hockey gear maker Bauer Performance Sports BAU.TO, and movie system maker Imax Corp IMX.TO, which stand to gain when families have a little extra money in their budgets.
The Canadian strategists had a few areas to stay away from as well, saying it is too tough to call winners in technology. Electronic retailers are being hammered by competition, while developers are already expensive.
“It’s difficult to get excited about individual electronic names, because that’s a low-margin business that keeps getting more and more brutal in terms of competition and the distribution,” Graham said.
Reporting By Andrea Hopkins; Editing by David Gregorio