SOURCE: BLOOMBERG
S&P 500 INDEX
(TOTAL RETURNS)
–6.3%
17.2%
OCT. 25, 2019
2018 2019
-15%
-10
-5
0
5
10
15%
MSCI EMERGING
MARKETS INDEX
(TOTAL RETURNS)
140
FORTUNE.COM // DECEMBER 2019
to manufacturing strength than it was in de-
cades past—and it keeps plugging along. Nu-
veen’s Malik and others think the consumer
will continue to buoy global growth in 2020,
based on strong indicators like low unemploy-
ment, rising wages, and savings rates. But
just in case economic growth cools off further,
some investors are reorienting their strategies
for profiting from that spending—looking at
the kinds of companies that stay strong even
when consumers begin pinching pennies.
In a downturn, consumers often show a
“trade-down effect,” explains Parnassus’s Lori
Keith. “Customers that may be shopping at
Macy’s today trade down to some of the off-
price retailers,” Keith suggests. That’s why
many investors are eyeing TJX Companies,
the parent of T.J. Maxx and Marshalls, among
other discount stores. Schoenstein of Jensen
Investment Management calls TJX “resilient
economically,” with competitive prices and
aspects of treasure hunting in-store that make
it more immune not only to downturns but
also to competition from e-commerce.
Schoenstein also likes General Mills, the
food and cereal colossus that makes Cheerios
and Lucky Charms. With “good products,
strong market positions, [and] historically
strong cash flow generation,” the stock is un-
derappreciated, Schoenstein says, trading at
17 times earnings. And General Mills’ recent
acquisition of pet food company Blue Buffalo
opens the retailer up to a broader market
of big consumer spending on four-legged
friends.
Keith is also a fan of Clorox, a company
whose namesake bleaches belie the breadth of
its portfolio in consumer staples. Clorox can
consistently exert pricing power for premium
brands like Burt’s Bees and Hidden Valley.
Innovation in new products contributes about
three percentage points on average to the
company’s annual sales growth, Keith says,
and strong brand awareness and high market
share make Clorox especially competitive.
Watts, the strategist at William O’Neil,
singles out Home Depot for its above-average
dividend yield (currently 2.3%) and strong
revenue growth. The home- improvement
if health care spending accelerates next year.
That’s because insurers’ stocks have already
taken a far bigger hit owing to fears over the
possibility of Medicare for All. Few have fallen
as far as Cigna, whose share price is down 15%
in the past 12 months. But the Connecticut in-
surer’s recent $67 billion acquisition of Express
Scripts—one of the largest pharmacy benefits
managers in the U.S.—has already boosted
revenues and made Cigna a stronger competi-
tor against UnitedHealth and Aetna. Assuming
private insurance doesn’t go the way of the pas-
senger pigeon, the company is a bargain.
CONSUMER STOCKS
These companies should keep the cash reg-
isters ringing even if the economy slows.
A
SLOWDOWN in manufacturing has
been the rock dragging down
U.S. economic expansion this
year. The influential PMI index,
for example, which measures ac-
tivity among purchasing managers, dipped in
September to its lowest levels since 2009. But
American consumer spending is far less tied
INVES T OR ’ S GUIDE 2020
PICKS
TJX Companies
(TJX, $59)
General Mills
(GIS, $53)
Clorox
(CLX, $148)
Home Depot
(HD, $233)
Target
(TGT, $110)
Burberry
(BURBY, $27)
PRICES AS OF 11/08/19
Is “Overseas” Oversold?
An extended slump, aggravated by trade tensions, has hurt
emerging-market stocks. Some investors expect a comeback.
