We are barreling toward the end of the June quarter, and that means we are nearing the halfway point for the calendar year. I know it’s hard to believe — after all, it feels like we have only recently thawed out from the winter weather and started to see signs that suggest a pick-up in the U.S. economy. Those signs include better manufacturing data, favorable housing data and, of course, a slew of new products, particularly coming out of the technology sector.
Most of those new tech gadgets — tablets, smartphones, gaming consoles and so on — tend to be announced in the first half of the year, but ship for the second half. That means the companies that supply them tend to see a seasonally stronger second half to their business compared to the first half of the year. I touched on this situation last week, but this week I want to share the PowerTrends that I think are best positioned to outperform in the back half of the year.
§The Cash Strapped Consumer
§Always On, Always Connected
§Safety & Security
The Cash Strapped Consumer — One somewhat negative thing to note from the May ISM Manufacturing Report, as well as the May Markit Economics PMI report, was the upward move in input prices. I have discussed similar moves in food inputs and at-the-pump gas prices. AAA recently published its 2014 forecast, which is calling for national average prices in the range of $3.55 to $3.70 a gallon, up from $3.47 to $3.67 per gallon last year.
The latest reports from Markit and ISM indicate more widespread inflation could be on the way. That forecast means forthcoming Producer Price Index (PPI) and Consumer Price Index (CPI) reports bear watching to see if companies are starting to pass on these price increases or if they will attempt to muddle their way through with productivity improvements and other cost-savings initiatives. Chipotle (CMG), McDonald’s (MCD) and Sonic (SONC) already have announced price increases. More recently, Kraft Foods (KRFT) and J.M. Smucker (SJM) have upped their prices for coffee by 9-10% each — I suspect more companies than not will follow.
The “official” employment data from the Bureau of Labor Statistics showed 217,000 jobs were created in the month, down from 282,000 in April. Breaking that report down, we find few to no manufacturing jobs created in the month. Instead, growth occurred in lower-wage retail, leisure, hospitality and healthcare jobs. Unsurprisingly, we continue to see little to no gain in wages when we look at them on a real basis, which is adjusted for inflation.
Chris Versace is the editor of PowerTrend Brief — a FREE, weekly electronic newsletter. He also writes PowerTrend Profits, a paid monthly newsletter that helps individual investors profit through buying shares of companies poised to win big in the 8 PowerTrends, as well as writes the PowerTrader trading service that seeks to deliver short-term gains using stocks, ETFs and options. Chris has been ranked an All Star Analyst by Zacks Investment Research.