20 stocks to help you play a big 'restocking' of consumer goods, according to Jefferies

1:57 pm ET October 19, 2020 (MarketWatch) Print

By Philip van Doorn

A supply-and-demand imbalance sets up a rebound in inventory restocking.

A supply-and-demand imbalance in the U.S. economy points to a group of stocks that should benefit from the "restock cycle," according to analysts at investment bank Jefferies.

Earlier this year, Americans were painfully aware of shortages of toilet paper, paper towels, certain food items and other commonly used goods. Thankfully the panic hoarding has subsided, at least for now.

But in an Oct. 19 report, a group of equity analysts at Jefferies wrote that the economic recovery in the U.S. has been marked by "incredibly strong retail and housing sales," and that "restocking efforts by retailers and homebuilders" could cause a sharp rise in demand that can benefit 37 companies and their shares.

U.S. retail sales were strong in September, rising 1.9% from August and surprising economists (https://www.marketwatch.com/story/us-retail-sales-surge-19-in-september-in-show-of-strength-for-the-economy-2020-10-16) polled by MarketWatch who had expected a 1.2% sequential increase. But the eye-popping number in the Census Bureau's retail sales data (https://www.census.gov/retail/marts/www/marts_current.pdf) was a 5.4% year-over-year increase in consumer spending.

The Jefferies analysts pointed out that in the pre-pandemic environment, manufacturers in many industries were trying to keep inventories lean to maximize efficiency. Looking ahead, Jefferies chief economist Aneta Markowska says companies may move from just-in-time inventory management to a "just in case" style, which means greater demand as inventory is built.

So the analysts see "scope for a powerful restock cycle." They named 37 companies that can benefit from the supply-demand imbalance in the U.S., and have "buy" ratings on 28 of them.

Here are the 20 companies listed in the report, all rated "buy" from the Jefferies team, that have the largest market capitalizations. Scroll the table to see all the data.

We're in the middle of third-quarter earnings season, and 12 of those companies had most recently reported quarters ending June 30 or earlier, based on data available from FactSet as of the close on Oct. 16.

Meanwhile, O'Reilly Automotive Inc. (ORLY), Campbell Soup Co. (CPB), Conagra Brands Inc. (CAG) and Church & Dwight Co. (CHD) all showed double-digit year-over-year sales increases.

In addition to Church & Dwight, Jefferies analyst Kevin Grundy included Kimberly-Clark (KMB) (the maker of Kleenex tissues, Scott toilet paper and Huggies diapers) and Procter & Gamble Co. (PG) on a list of companies that may benefit from "consumer restocking" through the end of 2020 and in the first quarter of 2021. KMB is not listed above because Grundy rates the stock "hold."

Within the beverages industry, Grundy called Constellation Brands (STZ), the brewer of Corona Extra and Modelo Especial beers, and owner of several brands of wine and spirits, as "the best way to position" for "an unprecedented consumer shift to take-home consumption channels."

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-Philip van Doorn; 415-439-6400; AskNewswires@dowjones.com

(END) Dow Jones Newswires

October 19, 2020 13:57 ET (17:57 GMT)