This provides additional information or updates to our existing investment strategy. Most recent post(s):
- Low gasoline prices in US are like an unrestricted subsidy for consumers - where is the investment opportunity?
This macroeconomic view provides the top-down perspective for our consumer discretionary sector investment strategy.
- U.S. gasoline prices are expected to be at multi-year lows this summer.
- U.S. food services sales were a little soft in June but we expect a rebound in July and continued growth for the rest of the year.
Where appropriate for clients’ risk tolerance and objectives, we continue to add consumer discretionary holdings (while ensuring a portfolio doesn’t become too concentrated in this sector).
Research & Analysis
1) Gasoline Prices
In nominal terms (not inflation adjusted) prices are at five year lows.
The U.S. Department of Energy, through the Energy Information Agency (EIA) suggests real (inflation adjusted) gasoline prices this summer will be the lowest in ten years. That period includes the housing crises and subsequent great recession. No matter how you slice it, gasoline prices are low.
2) Retail Sales
Retail Spending in the U.S. continues to favour the food services industry. We expect the flat June number reflects, to some extent, the gasoline price increase that month (off 5 year lows). We expect sales will rebound once again in July. However, we will watch this statistic carefully, making investment strategy adjustments if/when the food services trend changes.
Medium-term Investment Strategy
- BUY restaurant companies with vast majority of revenue in the US.
Triggers for Strategy Change
- Higher oil and thus gasoline prices.
- Changes in spending/saving habits of the US consumer.
Type: Investment Strategy Thesis
Area(s) of Analysis: nominal gasoline prices, real gas prices, food services revenue, Energy Information Agency short-term economic outlook, EIA, EIA STEO