These stocks are set to outperform in a ‘K-shape’ economy, Wolfe Research says
Stocks such as Ralph Lauren and Dollar General have strong upside potential in the current “K-shaped” economy, according to Wolfe Research. While an economy can expand in this scenario, it creates greater bifurcation between consumers and industries in the high and lower ends. With a widening wealth gap, lower-income shoppers tend to pull back from making purchases, while wealthier consumers benefit from rising stock and home prices — and can grow their spending power. Under these conditions, companies catering to higher-end consumers could get a boost, while those on the lower end will gravitate toward businesses offering more discounts and lower prices. Wolfe Research compiled two baskets looking at potential beneficiaries from greater spending among high- and low-end consumers. Stocks in the high-end spending basket have exposure to wealthy customers, whereas the names in the low-end spending basket have more exposure to lower-income consumers. Ralph Lauren , a designer apparel and accessories company, has soared more than 40% higher this year. The stock also reached its all-time high earlier this month, after the company reported better-than-expected fiscal second-quarter earnings and raised its full-year outlook. RL YTD mountain Ralph Lauren’s stock performance over the past year. “Our iconic brand and timeless products continue to resonate with consumers around the world, across generations and cultures, and we are reinforcing our inclusive luxury lifestyle position with disciplined investments to drive sustainable long-term growth and value creation well beyond this fiscal year,” Ralph Lauren President and CEO Patrice Louvet noted in the company’s earnings release. Tapestry and homebuilder Toll Brothers were also on the list. Discount retailer Dollar General and Walmart made the low-end spending list. The former is up more than 30% and has also been able to draw in more higher-end consumers. In its fiscal second quarter, Dollar General reported net sales of $10.7 billion compared to $10.2 billion in the same quarter a year prior. Earnings per share for the quarter also beat expectations. DG YTD mountain Dollar General stock performance over the past year. “Our improved execution, along with our progress advancing key initiatives, is resonating with both existing and new customers as we further enhance our value and convenience proposition,” Dollar General CEO Todd Vasos wrote in the company’s most recent earnings report. Walmart, meanwhile, raised its full-year earnings guidance on Thursday , as it too continues to draw consumers across income levels.
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