The consumer/retail blowup thread

Discussion in 'Stocks' started by Cutten, Sep 26, 2008.

  1. This looks to me like the next shoe to drop. How about we contribute a list of retail & consumer-focused stocks that look vulnerable? Here are some criteria for the stuff I think is in danger:

    1) Anything in the "aspirational" middle-market range. Not catering to the truly rich, but expensive enough that people will cut it back before other stuff. E.g. overpriced coffee, trendy restaurants, premium high-street/mall retailers.

    2) High-cost producers - won't be able to win/survive a price war, won't be able to discount without causing huge losses.

    3) Heavily indebted companies - won't have the strength to survive a genuine consumer recession

    4) Smaller companies - always more vulnerable in a slowdown.

    5) Credit-card companies - so far consumers have resorted to credit cards en masse to tide them over slow times. But this only works for so long, then the piper must be paid. Once the recession spreads to Main Street, credit card defaults will soar.

    6) Big-ticket consumer items requiring finance. The most obvious is autos - ok, this is not exactly unnoticed by the market, car makers are down big and the main ones are unshortable. But other expensive stuff like premium white goods, home improvements, expensive computer gear could get hit hard

    7) All "fad" and "concept" consumer companies

    8) Higher-risk consumer/small business finance e.g. car leasing firms, factoring companies

    What will do well? Low cost bargain basement value companies e.g. discounters. Bigger companies with conservative debt levels. Defensive consumer stocks e.g. food. There could be some nice spread trades to put on here.

    Also an unusual potential play - "tin foil" companies e.g. safe & money box manufacturers, gun manufacturers, tinned food producers, liquidators & receivers :) For when people fear bank runs and street riots.

    Any suggestions for stocks fitting these categories?
  2. Quote from Cutten:

    What will do well? Low cost bargain basement value companies e.g. discounters. Bigger companies with conservative debt levels. Defensive consumer stocks e.g. food. There could be some nice spread trades to put on here.

    Target may be the recipient of some $$$ if wealthier types move down from upscale places. It is considered a WalMart, but classier. Maybe catch it at a low in these bad times, and hang on a year or two. If things hit the fan, Walmart/Costco/BJ's will get a lot of business from people who cannot go to the mall anymore.

    Whatever that Jersey/NY bank Hudson Bancorp or something? Cannot remember. They are one bank doing well because they require 20% down and do not sell off their mortgages. Might be worthwhile "spreading" them against another regional bank with problems. Get them on a downswing and a regional on an upswing, and hold on for a year

    Also an unusual potential play - "tin foil" companies e.g. safe & money box manufacturers, gun manufacturers, tinned food producers, liquidators & receivers :) For when people fear bank runs and street riots.

    Maybe whoever makes the freeze-dried meals you see in camping sections of dept. stores.

    Find someone who makes civilian bullet proof vests. In Argentina after their 2001 collapse, things were somewhat violent. Brinks might also do rather well. Also, there are a couple of pawnshop chains. One of the few places who will do well, especially early on in a deep recession when everyone is pawning expensive things for a song.

    In the Great Depression, only gold, gold mining companies gained throughout. Govt bonds held up. Real estate, but that is something to buy when things are really bad and get some real steals, and be willing to hang on until things improve. Maybe do a few options to purchase to people desparate for $$$ so you don't have t oexercise unless the prices go up a lot.
  3. Haven't given specific companies much thought.

    But agree with your premise the next shoe is consumer sector.

    Apple. RIMM. Wireless Carriers. Car/Appliance/Electronic Gadgets. Samsung. Sony. Panasonic.

    Travel. Credit Card. Restaurants.

  4. Maybe auto parts will be okay. People keep their cars longer.

    Maybe carpeting mfg will hold up. If people don't sell homes they improve them if they stay put, bldg material are expensive but carpeting freshens up a place without too much expense.
  5. 2ticks


    SCOTTSDALE, Ariz. (Sept. 26, 2008) GE Capital Solutions, Franchise Finance, the largest restaurant lender by assets and clients, confirmed Friday it would be “much more selective” and defer rate quotes on new deals as the credit chill that began last year becomes a freeze in the face of Wall Street uncertainty.

    GE Capital spokesman Stephen White said that while the Franchise Finance division was still active in the restaurant industry, it would continue to quote deals only “where competitive and appropriate.” GE also said it would honor any existing arrangements.

    “We are being much more selective and have raised our hurdle rates, which has slowed deal approvals,” White said. “We’re still active -- less so in the last two weeks -- and are simply taking more time as the environment settles.”

    He added that GE Capital would cease providing rate quotes “until things settle down,” but it would continue to accept credit packages.

    According to lenders, operators and industry analysts, almost all financial institutions are re-evaluating their lending positions in the face of the credit crunch and the uncertainty surrounding a bailout plan for embattled banks on Wall Street. The situation, while changing daily, does guarantee a higher cost of capital, less available leverage and tighter lending structures for operators that need funding. It also could have a dramatic effect on the restaurant industry’s growth plans, which rely heavily on franchise activity.

    GE’s decision to re-evaluate new restaurant lending comes on the heels of Bank of America’s alleged pullback on new lending to McDonald’s franchisees for upgrades surrounding the chain's espresso-based beverage initiative. McDonald’s Corp. spokeswoman Heidi Barker said Friday that Bank of America is “currently making new loans and continuing to lend to McDonald’s franchisees,” despite previous reports that had suggested the contrary.

    With the banking system so unstable, industry sources have indicated that it is likely some restaurant companies may be unaware of changes to lending relationships because of the day-to-day unrest with the credit markets. Bank of America is in the midst of a merger with Merrill Lynch, another restaurant lender, and restaurant securities analysts proffered this week that any pullback in lending at McDonald’s or elsewhere could be based on the two banking institutions evaluating their portfolios. No one has suggested there is a credit issue at McDonald’s, and corporate spokeswoman Barker added that the company and its franchisees have access to more than 50 lenders.

    Still, the reports of recent pullbacks at two main restaurant lenders are "disconcerting to say the least," said restaurant securities analyst Sharon Zackfia at William Blair & Co.

    Both the International Franchise Association and the National Restaurant Association, which says 70 percent of the restaurant industry is comprised of independent franchised operators, have called on Congress to enact the proposed $700 billion rescue package that is expected to provide liquidity to the nation’s financial institutions and kick start lending and economic growth.

    GE Capital, which holds more than $100 billion in assets, is feeling pressure from parent company General Electric Co., which said this week that it would shrink its entire GE Capital unit and curtail borrowing at the division for the rest of the year. The Franchise Finance arm boasts more than $13 billion in served assets.

    The lending freeze could curtail not only new unit development, but the refranchising plans of major franchisors who have counted on the sale of corporate locations to franchisees, deals that typically require outside lending, to shore up near-term corporate revenues and earnings.

    Companies undertaking refranchising initiatives include Sonic Corp., Yum! Brands Inc., CKE Restaurants Inc., Jack in the Box Inc. and DineEquity Inc. Companies that have said future growth will come more from franchised development than from new corporate units include Panera Bread Co. and Buffalo Wild Wings Inc.
  6. Circuit City?

    Six Flags?

    I definitely second you on Sony. They put all of their chips in the PS3/Blue Ray basket, just to have slow blue ray sells due to people downloading movies via Netflix/Amazon/Itunes.

    I would say Capital One, but people seem to be flocking to the company like no tomorrow:

    I would also look for entertainment companies [other than Sony], because people would probably be more inclined to stay home [Nintendo WII has broken more sales records here recently, and it is CHEAP]. I am just basing this on going out here and Tampa and noticing the clubs and theaters being more and more emptier than I have ever seen here.

    That's just my $0.02
  7. I've already made my money in WFMI puts