Will the consumer goods bonanza continue?

Will the consumer goods bonanza continue? by Michael McKenna
Retail sales in the US and Europe have catapulted to new records as consumers have increased spending as the Covid-19 shock as alleviated. Less spending on travel, leisure activities and gasoline is being diverted to general consumer goods excluding big-ticket items such as cars.

August retail sales in both the US and Europe were strong hitting record levels. Part of it is a naturally bounce back from depressed levels during the early lockdowns due to Covid-19. As time has progressed our health care sector has become better at treating Covid-19 patients causing the second waves of Covid-19 in the US and Europe to have smaller impact on the health care sector. Only restrictions are enforced and thus retail sales activity can function normally again. On top of that many households are spending much less on travelling and leisure activities than before. Even gasoline consumption is still much lower due to work-from-home increasing disposable income for households. Our theory is that households are reallocating their spending towards consumer goods and delivery services of food and e-commerce packages, and not so much the big-ticket items such as cars.

Go for high quality and brand companies

Zalando’s Q3 numbers yesterday and raised FY20 outlook confirms that consumer goods are doing well, but also Tesco in the UK showed good results the other day. Consumer goods companies such as Nike has also been showing impressive levels of growth since the bottom in March. As a travel and leisure activities remain significantly below normal levels the bonanza in consumer goods will continue. The table below shows high quality consumer goods names (highest return on invested capital) and fastest growing consumer goods companies. Our assumption is that companies with high quality will be better to navigate the uncertain times and companies with a strong brand will be able to lift sales better online, so we recommend investors to incorporate those factors when getting exposure to consumer goods companies.

High quality consumer goods companies (ranked on ROIC)

Name Mkt. Cap. USD mn. Return 5Y ROIC P/E
Kimberly-Clark Corp 51,263 54.56 33.35 19.96
Colgate-Palmolive Co 67,512 34.38 32.79 26.13
NVR Inc 16,099 177.12 31.38 20.91
Reynolds Consumer Products Inc 6,494 30.50
Lululemon Athletica Inc 44,038 523.39 30.23 80.60
Monster Beverage Corp 41,754 74.43 28.00 37.08
Clorox Co/The 26,828 101.16 27.83 28.91
Booking Holdings Inc 73,249 37.15 26.04 30.97
Persimmon PLC 10,821 80.89 25.44 12.36
Herbalife Nutrition Ltd 7,506 82.82 23.33 16.76
Hermes International 93,936 134.36 22.90 71.06
boohoo Group PLC 5,487 928.09 22.26 47.98
Moncler SpA 10,956 132.33 21.97 35.51
Deckers Outdoor Corp 6,873 294.56 21.71 23.89
Hershey Co/The 29,853 66.97 21.42 24.51
Taylor Wimpey PLC 5,720 -14.80 20.80 9.93
Levi Strauss & Co 6,180 20.65 34.59
Pandora A/S 7,707 -25.71 20.63 33.46
Garmin Ltd 18,766 216.71 20.49 22.82
adidas AG 65,358 285.76 20.00 96.78
Brown-Forman Corp 35,992 100.45 19.86 43.31
eBay Inc 36,450 121.34 18.39 18.28
Royal Unibrew A/S 5,062 194.18 18.26 28.90
Boston Beer Co Inc/The 11,233 307.64 17.57 80.90

Source: Bloomberg and Saxo Group

High growth consumer goods companies (ranked on 1-year revenue growth)

Name Mkt. Cap. USD mn. Return 5Y Rev. growth 1Y P/E
Etsy Inc 16,651 928.30 136.75 113.83
HelloFresh SE 9,326 122.65 38.20
Delivery Hero SE 22,546 94.53
Wayfair Inc 29,006 670.77 83.71
Fiverr International Ltd 5,452 81.88
Farfetch Ltd 9,075 74.27
Beyond Meat Inc 12,076 68.53 6738.21
MercadoLibre Inc 57,682 1138.95 61.10
Chewy Inc 24,197 47.36
boohoo Group PLC 5,487 928.09 44.51 47.98
Boston Beer Co Inc/The 11,233 307.64 42.00 80.90
Grubhub Inc 6,817 146.60 41.29
Amazon.com Inc 1,598,113 498.42 40.23 122.67
Ocado Group PLC 23,486 596.49 34.98
Zalando SE 26,790 188.38 27.38 189.13
Clorox Co/The 26,828 101.16 21.88 28.91
Prosus NV 148,708 18.97 38.78
Campbell Soup Co 14,636 9.84 18.43 16.30
eBay Inc 36,450 121.34 18.24 18.28
Conagra Brands Inc 18,197 29.81 12.06 14.69
Nomad Foods Ltd 5,019 50.06 11.38 22.14
J M Smucker Co/The 13,361 14.65 10.84 14.73
Church & Dwight Co Inc 22,540 125.30 10.64 32.09
ASOS PLC 6,827 83.22 10.26 98.92
DR Horton Inc 28,263 169.55 9.86 14.47

Source: Bloomberg and Saxo Group

Topics: Equities United States Europe Consumer Goods Nike Tesco Plc

THE ULTIMATE TRADING EXPERIENCE