(Bloomberg) -- After a tough year for European consumer and retail stocks, investors and analysts are studying shoppers’ shifting spending habits as they assess investment opportunities for what some expect to be an equally difficult 2018.
Those offering popular leisure activities, luxury and sporty fashions are among the favorite picks, while purveyors of big-ticket items such as cars and sofas aren’t so well liked.
“It’s less about the level of overall spend, but more about where people are spending their money,” said Matt Evans, a fund manager at Investec Asset Management Ltd., whose U.K. smaller companies fund looks for businesses that are able to grow in a tough consumer environment. Here’s a roundup of possible winners and losers for 2018.
Hollywood Bowl Group Plc, Hotel Chocolat Group Ltd. and The Gym Group Plc are among companies that tap into consumers’ willingness to spend money on affordable yet good-quality experiences and treats, according to Investec’s Evans. “If you’re involved in experience at the right cost, and offer a service where people can come back and repeat and enjoy, I think that’s a really interesting place to be,” he said of Hollywood Bowl.
Consumers, and particularly millennials, increasingly want a personal feel when buying products and online marketing plays a big role in how brands are perceived. Luxury and cosmetics companies that are able to able to adapt to this inclination, whether it be through sequins on a denim jacket or online tutorials on how to shape eyebrows, are likely to be successful, according to Grace Peters, global investment strategist at JPMorgan Private Bank. “This idea of your personality, being able to put a fresh touch on things, is a trend that we’ve seen. It’s a millennial trend, but I think it’s going to continue.” Market leader LVMH is the most favored luxury stock among analysts, with 22 buy ratings and just one sell.
With sports wear growing at a faster rate than the broader fashion market, Macquarie Capital sees Adidas AG as a clear winner. “They have become more innovative, they have become faster,” said Andreas Inderst, an analyst at Macquarie who has held an outperform rating for more than two years. “They are finally cracking the U.S. market, they’re taking significant market share and they have a management in place which we think has a much stronger focus on the right balance between top-line growth and margin expansion.”
While Investec’s Evans sees consumers spending money on smaller rewards or niche areas, he is more concerned about big-ticket items such as sofas, cars and expensive holidays, which “could all be a very challenging area going forward in terms of getting the real growth.” Only six out of 16 analysts covering tour operator Thomas Cook Group Plc rate the stock buy, with the average target price suggesting no upside in the coming year.
With U.K. consumer debt remaining at elevated levels, unsecured lending has grown partly due to motor finance, according to Martin Walker, U.K. equities fund manager at Invesco Perpetual. “I wouldn’t necessarily be buying a motor retailer right now,” he said.
“If you haven’t a good digital strategy, you can’t get it in front of people, and that’s what the consumer wants,” said Mark Phelps, chief investment officer of global concentrated equities at AllianceBernstein. Those with the right data “can put offerings in front of people and it’s remarkably effective at getting them to buy.”
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