Buy American For Growth And Yield In 2020
I took a stance last spring that centered on U.S. focused business. The trade war and all its tariffs were having a major impact on corporate earnings. The data clearly showed U.S-centric business was outperforming. While the average S&P company was producing tepid growth in 2020 those with exposure to China did worse and those without did better.
Based on data from Factset, business with more than 50% of revenue coming from China and/or International sources saw their EPS decline double-digits in 2020. Those S&P 500 businesses with less than 50% of revenue from China and/or International saw modest to moderate EPS growth.
One reason why this investment thesis remains sound is the Coronavirus. Sure, China’s economy is slowing reopening but let’s face it, it will be weeks if not months before the country is back on-line at 100%. We’ve already received warnings about impacts to revenue from hundreds of companies, we are bound to get more before the virus has run its course. I don't think the correction is over.
The U.S. Consumer Is Only Getting Stronger
The underlying driver of growth in the U.S. is the consumer and the consumer is only getting stronger. Starting with the labor data, there is a record number of people working in the U.S. The labor market has been adding about 160,000 news jobs a month for more than five years. The labor force participation rate has begun to climb again. We have historic low unemployment across America and record low unemployment among minorities. And wages are and at a +3% average pace, well above inflation, providing a double-boost to real spending power. I could go on and on.
All that labor market strength adds up to one thing, Consumer Confidence. The Conference Board’s index of Consumer Confidence rose again this month. At 130.7 the reading is up 0.3% from the previous read and points to ongoing strength in the U.S. economy.
Lynn Franco, Senior Director of Economic Indicators at the Conference Board … “Despite the decline in the Present Situation Index, consumers continue to view current conditions quite favorably. Consumers’ short-term expectations improved, and when coupled with solid employment growth, should be enough to continue to support spending and economic growth in the near term.”
Cracker Barrel Ups Guidance
Cracker Barrel (CBRL) reported earnings earlier this week. The company reported a slight decline in in-store traffic that was offset by factors that point to continued revenue and earnings growth in 2020. Rising costs related to commodity pricing and labor have prompted Cracker Barrel to raise prices. The program began a year or so ago and resulted in a 4% increase in average check over the last year. Factor in the -0.2% decline in traffic and comps come in at a nice 3.8% and well above expectations.
Cracker Barrel has been so successful with the program additional increases are expected this year. Management upped the full-year guidance as well, and to a range above the consensus average. The analysts remain neutral on the stock but I expect that will change as the year progresses. Cracker Barrel is a dividend-payer with 17 years of increases under its belt, a 3.25% yield and a double-digit distribution growth rate.
TJX Companies Is Winning The Retail Wars
While mainstream retailers are battling for consumer dollars, most of them losing, TJX Companies (TJX) quietly sits in the shadows. The company is the parent of TJMaxx and Marshalls, both in business selling discount, overstock, and close-out items. When a big-name retailer goes out of business you can rest assured consumers will find those labels at the local TJX location and for prices well below retail.
TJX Companies just reported earnings and beat consensus estimates on a whopping comp-store figure. The company’s comps surged 6.0% and nearly double the analysts consensus. What makes the comps so dazzling is the fact last year’s Q4 also posted a 6.0% comp-store sales increase. Looking forward, TJX is well-positioned to see growth across all segments.
The only negative is that there is some international exposure but there are two mitigating factors. The first is no exposure to China, the second is the international segment is the leading growth segment with a 10% comp to last year. TJX yield is lower at 1.5% but comes with other perks. TJX is a Dividend Aristocrat, the payout ratio is super low, and the distribution growth rate is double-digit.