Without a doubt, American consumers have been extremely resilient this year. They have been continuing to spend a great deal of money on many experiences and certain products despite inflation which remains rather high despite having fallen significantly. I believe that the key reason for consumers’ resilience has been the labor market which is still quite strong. Going forward, I expect the unemployment rate to remain historically low, as the onshoring trend, the energy revolution, the government’s elevated spending on infrastructure and elevated consumer spending continue to cause many companies to expand and look for new employees. On the flip side, there are a ton of undervalued consumer stocks.
I predict that consumer spending will keep climbing. However, with many consumers’ yearning for vacations now satiated, I expect their spending to shift away from airplane flights and hotels and towards electronics products and restaurants near their homes. These undervalued consumer stocks will enable longer-term investors to profit from these trends.
Best Buy (BBY)
During Best Buy’s (NYSE:BBY) second-quarter earnings call held on Aug. 29, CEO Corie Barry said, “We believe next year the consumer electronics industry should see stabilization and possibly growth driven by the natural upgrade and replacement cycles for the tech bought early in the pandemic and the normalization of tech innovation.”
With artificial intelligence-oriented products likely to reach Best Buy’s shelves next year, and many more consumers buying smart TVs as streaming proliferates, Barry’s statement is likely to prove to be quite conservative. Speaking of AI, Intel (NYSE:INTC) CEO Pat Gelsinger has asserted that new PCs will be used to unlock some features of AI, including “real-time language translation and AI-powered gaming environments.” Utilizing AI PCs will make users “more efficient,” the CEO explained.
Of course, Best Buy will sell those new PCs, which could surface, as soon as the middle of next year.
BBY has a low forward price-earnings ratio of just 12 and a miniscule trailing price-sales ratio of 0.36, making it one of the best undervalued consumer stocks to buy.
Denny’s (DENN)
Denny’s (NASDAQ:DENN) reported strong second-quarter results last month as its “company restaurant sales” climbed 12% versus the same period a year earlier. Its operating income rose 8% year-over-year to $14.93 million. For all of 2023, the company expects to generate impressive adjusted EBITDA of $86 million to $90 million.
I believe that the company’s results and guidance suggest that my thesis of the company are correct. They are benefiting from the migration of consumers to the south from the northeast is playing out well. Specifically, I predicted that many of those migrants would eat at Denny’s because they missed the multitude of diners in the northeastern states, while Denny’s menu is similar to that of a diner.
DENN has a rather low forward price-earnings ratio of 11.
Restaurant Brands International (QSR)
JPMorgan on Aug. 21 started coverage of Restaurant Brands (NYSE:QSR) and gave the Burger King owner an “overweight” rating.
The bank is upbeat about the company’s top executives, including “very widely respected former Dominos CEO Patrick Doyle.” In the past, I’ve also been bullish on QSR’s decision to appoint Doyle executive chairman late last year, as I noted that Dominos had performed very well during his tenure as CEO there.
JPMorgan expects QSR’s emphasis of “unit economics” to boost its overall financial results and predicts that the company’s international restaurants will grow meaningfully.
JPMorgan placed an $82 price target on SR stock.
The shares have a low forward price-earnings ratio of 14, well below McDonald’s 22.7. Additionally, QSR stock has a dividend yield of 3.3%.
On the date of publication, Larry Ramer held a long position in INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
