Consumers Are Restocking the Pantry

The outlook for the shopper has been rather dismal over the last several weeks as unemployment rates and jobless rates have climbed. However, yesterday the U.S. Commerce Department reported higher than expected rates for both personal income and savings. People are making more and saving more, which can affect spending -- the Commerce Department recorded a 0.6% rise.

At the same time, Redbook Research's report on national chain stores sales also suggests that consumers are spending more. According to Redbook, the first four weeks of February showed a growth of 0.8%, compared to the same period in January and better than the expected 0.5%. The one sore spot in the Redbook data was for the last week of February, which was weaker than expected, but this just reinforces the notion that we are not out of the woods as yet.

The concurrent rise in personal saving and spending suggests that consumers are selectively purchasing items they need in their day-to-day lives. A quick check on recent trends in durable goods orders and ISM manufacturing new orders data confirms that consumers are not out buying cars and other pricier, longer-lasting goods.

Rather, people seem to be buying consumables -- groceries, soaps and personal care products, such as razors and deodorant. These are purchases that can be pushed off as consumers destock, but past a certain number of weeks, they need to be replenished.

Companies that provide these consumables include Procter & Gamble (PG - commentary - Cramer's Take), Kraft (KFT - commentary - Cramer's Take), Heinz (HNZ - commentary - Cramer's Take) and Pepsico (PEP - commentary - Cramer's Take). Retailers for replenishing these goods stores such as Kroger (KR - commentary - Cramer's Take), Wal-Mart (WMT - commentary - Cramer's Take) CVS (CVS - commentary - Cramer's Take) and Walgreens (WAG - commentary - Cramer's Take) among others. All of these names were victims of pantry destocking in the December quarter and into 2009.

To profit from this play, one could buy a basket of these stocks and their competitors, but I would rather focus my dollars on a few good horses. The two that I would do more homework on here would be Procter & Gamble and Pepsico.

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At the time of publication, Versace had no positions in the stocks mentioned, although positions may change at any time.

Chris Versace is a founder and managing partner of Agile Capital Management in the Washington, D.C., area. ACM uses a thematic perspective coupled with an ecosystem lens based on the methodologies that Versace used during his 13 years as an equity analyst at Salomon Brothers, Donaldson, Lufkin & Jenrette and Friedman Billings Ramsey.

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