The pandemic was a massive disrupting event that will change people.
Huge events have a way of impacting people and changing their behavior for a long time. I remember being a financial advisor in the ‘90s and realizing that the Great Depression was still affecting people’s attitudes about investing more than 50 years later. I know people from the South who still think about the Civil War on a regular basis. That war ended in 1865.
More recently, many investors still haven’t gotten back into the market since the financial crisis. People around me are still saving food supplies since Hurricane Sandy in 2012. On a personal level, I still don’t drink brown liquor because I got sick from whiskey when I was 19 years old.
What do you think the global pandemic and ensuing year-long lockdowns will do to this country’s current frail psyche?
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People were forced to lock down in their homes for a whole year. Young kids were home all the time. You couldn’t even have a funeral. If you had to go out, you had to wear a mask to lower the odds of catching the virus and dying. The news was constantly about Covid.
That experience won’t just roll off people any time soon. It is likely to affect people’s behavior for quite a while. In fact, it’s already changing things. People have become noticeably more home-centric on a mass scale.
For over a year we shopped, worked, exercised and got entertainment all from home. Some things were already trends that got accelerated several years and other activities got new life. A study released in June by global management consulting firm McKinsey & Company indicated that 73% of consumers are still hesitant to resume activities outside the home.
It is anticipated that far more people will continue to work from home than would have without the pandemic. Online shopping took off and is expected to continue at a much higher level than before. People are also exercising more from home and cooking in far greater numbers. Many of these trends are expected to continue if not accelerate in the years ahead.
Not only have people changed habits, but the future is about the younger generation. And they were homebodies even before the pandemic. A recent survey by youth marketing experts YPulse indicated even before the pandemic that 67% of 19-37 year-olds would rather stay in on the weekends than go out. They also overwhelmingly express a desire to own a home. And they prefer to work from home and exercise at home rather than go to a gym.
As investors, we need to look at change as something that isn’t necessarily good or bad, but rather a simple fact that needs to be anticipated and managed. Investing ahead of a trend or behavioral change is a very successful strategy. It’s hard to pick a winning stock, especially in a more normalized market. But if you correctly anticipate the beneficiaries of a dramatic shift, it’s a whole lot easier.
Here is a company well-positioned to benefit from the changing consumer.
Spectrum Brands Stock (SPB)
Spectrum Brands Holdings, Inc. (SPB) is a global branded consumer products and home essentials company. It was formed in 2005 when battery company Rayovac added more brands and changed its name. The company offers popular well-known brands including the George Foreman Grill, Kwikset Lock, Cutter Bug Repellent, Remington and Black & Decker products.
Spectrum operates in four segments: Home Improvement, Home and Personal Care, Pet Care and Home and Garden Supplies. The products are very home-centric. That has served it well during the pandemic.
In fiscal 2020 (which ended last September) earnings increased 43% over the previous year. As a result, SPB has returned over 200% since the March 2020 market bottom in the pandemic, more than doubling the S&P 500’s return over the same span. Analysts had been expecting earnings per share growth of 52% this year and an average of 18% over the next five years. But a recent development is likely to increase those numbers.
Early last week Spectrum sold its Home Improvement unit to a Swedish home necessities company for $4.3 billion. The market loves the deal and the stock soared about 19% after the announcement. Despite the recent returns, SPB sold at a cheap valuation because it had been held back by worries over high debt, a concern this deal alleviates.
The company will use the proceeds to eliminate debt and target strategic acquisitions. The CEO says that the downsized company will have higher earnings growth rates and better margins after the sale.
Despite recent growth concerns over the Delta variant, the consumer is still loaded. Saving rates are still far higher than they were pre-pandemic at around 13% compared to 8% or 9% before. And the virus concerns will likely add to home spending.
The pent-up consumer demand is still strong and should have a long way to go. Plus, the home focus is lasting beyond the pandemic. Most analysts in the field believe the trend is here to stay.
Buy Spectrum Brands stock now to ride this new post-pandemic trend.
Do you have another stock that is a play on the post-pandemic homebody trend? Tell us about it in the comments below!
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