Wall Street has been busy figuring out where and when consumers will spend their rebate checks, even as the latestconsumer sentiment numbers show U.S. consumers are more distressed than they've been since 1982.
Goldman Sachs has a top 10 list of stocks expected to benefit from stimulus. They are: Cheesecake Factory; Best Buy,Darden Restaurants,Home Depot, JC Penney, Kroger,Kohls, Royal Caribbean,Safeway and Wal-Mart.
JP Morgan today upgraded the consumer discretionary sector to a slight overweight from underweight, saying there's a short-term trading opportunity around the consumer. One factor it sees helping the group is that tax rebates may reach consumers faster than expected, as a large share will be transferred electronically. They also say if there's a housing bill, it could have a positive impact on the consumer.
The firm also said it sees a deeply oversold condition in the group, compared to the S&P 500. Some of the names J.P. analysts like include Kohls, Costco, Ross Stores, Quicksilver, Home Depot, Darden, and Group 1 Automotive. But they would avoid and see as shorts: Family Dollar, Macy's, Jones Apparel, Liz Claiborne, Ann Taylor and Abercrombie and Fitch.
But interestingly, Goldman also says 55 to 60 percent of the rebate funds could initially go to pay down debt, according to its recent consumer survey. That fits with a trend in the University of Michigan/Reuters survey today that shows consumers lean toward debt reduction and savings, with only three in 10 people planning to spend their rebate checks.
So will retailers really benefit? We've certainly seen more than a few rushing to lay claim to those rebate checks. We've seen Home Depot, Sears , Kroger and Supervalu all with various rebate related gimmicks.
In its note today, Goldman said it believes the benefit of the stimulus check could spread over a longer period of time if consumers pay off credit cards and other debt with the checks. Those consumers may ultimately spend at a future date.
Goldman's consumer survey shows though that 25 to 30 percent, or about $27 to $32 billion, of the stimulus will be spent outright. It says the survey confirms the majority of the stimulus will be spent in second and third quarter.
The survey also confirms where consumers plan to spend those checks. The firm believes restaurants and home improvement stores will benefit but the biggest impact will be felt by discount retailers, department stores and food retailers.
The analysts expect consumer discretionary stocks to see some improvement this year due to the improved discretionary cash flow, beginning in second quarter. Goldman also says there's signs of a potential bottoming for consumer-related stocks because of top line and consumer confidence trends that are at levels typically seen at troughs.
Those consumer sentiment numbers certainly could be signaling that. For April, the index fell to the lowest level since March, 1982. It came in at 62.6, down from March's 69.5. Economists had expected a reading of 63.2. The director of the University of Michigan/Reuter survey said the acceleration in the loss of confidence could be a sign of a possibly longer and deeper recession.