3 stocks I’m buying this November 2021 in the coming consumer stocks bonanza for higher returns
Consumers have saved up more than $5 trillion during the pandemic, with $3.6 trillion of that saved in the U.S. alone. That’s a wave of money ready to wash over retailers and the economy…but it won’t go to all stores equally!
In fact, there is a very specific part of the retailer market where I think as much as 70% of this money could be spent and it’s where I’m positioning for a bonanza in consumer stocks. In this video, I’ll show you how that wave of consumer spending could drive stocks over the next year including the specific group I’m watching. I’ll then highlight three stocks we’re buying for November, three stocks to ride that wave to higher returns. We’re talking stocks to buy for November, today on Let’s Talk Money!
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Reasons Why the Rich Stay Rich
Nation, of the nearly $4 trillion added to household savings in the U.S. during the pandemic, Oxford Economics believes 70% of that…over $2.5 trillion was saved by the wealthiest 20% of Americans.
And there are a couple of reasons why this happened. First is those with higher-income jobs were most likely to be able to work-from-home during the pandemic. They were able to keep that income rather than get laid off like a lot of those working in retail and hospitality jobs.
Also, that higher income group would have had more money in stocks and benefitted from the amazing bull run in the last two years with tech stocks up 65%.
That $4 trillion in savings is ready to be spent…people are getting out and retail spending has jumped over the last two months to over $550 billion. This dynamic, the build in spending power by consumers is part of the reason I’m loading up on stocks of consumer discretionary names, but it’s not the only reason.
The consumer discretionary sector of stocks is the 6th best performing this year with a 17.5% gain but still underperforming the market and I think there’s a lot of value here.
Besides strength on the consumer side, there are three reasons I think luxury brand companies could outperform for stronger returns. In fact, the upside to this part of the industry is so strong, all three of the stocks I added to our 2021 Bow Tie Nation portfolio last week were in that high-end consumer market.
First, the massive change we’re seeing in the job market will favor these companies. There are more than 11 million job openings right now, the highest on record, and only eight million unemployed to take those jobs. More than four million people quit their job in August alone, another record.
This all means that, as employers raise wages to fill jobs, that giant sucking noise is going to be the sound of all the workers being sucked out of low-paying retail jobs. All the discount retailers, all the fast food restaurants and the Motel 6’s paying minimum wage…it’s going to be a mass exodus of workers up the pay scale.
The wage pressure is going to add to a long list of problems for retailers and consumer stocks, something brought home after Bed, Bath & Beyond’s recent earnings report that sent the shares plunging 20%!
That’s not to say luxury retailers won’t also face these issues but the higher margins on their products, that higher sales price, means they’re more likely to pay workers more and could see less pain.
Luxury retailers also tend to get more of their sales online rather than in-store which will not only help protect profitability but will save them from that mad scramble for workers. For example, Coach and Kate Spade owner Tapestry was able to drive a three-fold increase in online sales last year, helping it to increase gross profitability to 70% almost three-times the 27% gross profit margin at Target and 36% at the Gap.
Finally, before I reveal those three stocks I’m buying for November, luxury retailers tend to have greater pricing power than discount stores. Their customers are less sensitive to an increase in prices so whereas a 5% increase on that knockoff Chanel suit might mean ticket-shock at TJ Maxx…it might not make your typical Chanel customer blink.
Now to those three stocks I’m buying for the portfolio. If you want to follow our 2021 stocks, I’ll leave a link to Stockcard below. Click through and then go to Portfolios in the top menu, you’ll find the Bow Tie Nation portfolio in this Stock Picks section. It’s free to follow and you’ll get email notifications whenever I buy or sell from the portfolio.
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3 Stocks to Buy November 2021
With just two months left to 2021, we could see the upside here in third-quarter earnings or may have to wait for next year but it’s there and our first stock I’m buying is $10 billion retailer Tapestry Inc, ticker TPR.
Tapestry owns the iconic Kate Spade, Stuart Weitzman and Coach brands with 52% of sales from handbags and 62% from the North American market. And the pace of ecommerce growth here has been phenomenal. After that three-fold increase in online sales last year, the company was able to build on it with 55% growth in the most recent quarter, adding another 600,000 new customers in North America alone.
Quarterly revenue jumped 125% in the most recent and is up almost 16% over the last four quarters to just under the 2019 total. Despite that strong run in sales, it’s only trading for 13-times on a price-to-earnings basis and expected to post 13% earnings growth this year.
Analysts have an average target price of $53 per share over the next year, an upside of 38% from the current price and shares traded as high as $49 each earlier this year.
This one also pays a 2.5% dividend yield, adding cash flow to that potential for returns.
Next on our list of stocks to buy for November, Capri Holdings, ticker CPRI, formerly Michael Kors as well as owner of the Versace label and Jimmy Choo.
The turnaround is in play with 177% revenue growth last quarter and 31% expected this year to $5.3 billion. In fact the company did so well last quarter that management raised the full year earnings guidance to $4.50 per share. That puts the shares at just 11.6-times on a price-to-earnings basis.
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Management’s goal is to triple online sales though it’s also trying to increase the physical store footprint as well. Gross profit of 68% is slightly lower than Tapestry but still very good for apparel retailing and increased 0.9% in the first quarter, so that strong sales increase plus higher profitability.
The average analyst target price of $70.45 per share is 35% higher from here and nearly to the 2018 high. Even back up to the 52-week high would be a 17% return on the shares.
This next stock I’m buying, Signet Jewelers ticker SIG, is not only on that luxury brand theme but also the potential for a wave of weddings.
Industry research from The Wedding Report, estimates that 2021 weddings hit 2.77 million, more than twice the number from last year and 30% higher than in 2019. And with the Delta surge and lingering COVID fears, there are still millions of weddings postponed until next year.
That means continued strength in sales on those shiny little diamond rings, especially for Signet Jewelers with 6% of the specialty jewelry market. That might not seem like much but it’s as much as 10-times the next closed competitor in a market that is highly fragmented.
Management is targeting 10% U.S. market share and grew its ecommerce sales five-fold to 23% of sales last year. That change helped it drive a gross profit improvement from 24% of sales to 40% in the most recent quarter.
Signet has already posted $5.66 billion in 2021 revenue in the first three quarters, nearly as much as in all of last year, and is expected to top $6.9 billion in total sales this year. Earnings are forecast to top $10 a share this year which would put this one cheapest on our list at just 8.8-times on that price-to-earnings basis.
Now the average analyst target of $91 a share here is just 3% higher from here, the shares have continued to climb on strength in weddings, but I think this is one where analysts are behind the curve and the price can go even higher.
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