Not-So-Bleak Future for Consumer Discretionary

Everybody knows the consumer is a dead man walking. The stock market predicts he or she will continue to buy toothpaste, breakfast cereal, deodorant and not much else. This is no time to replace the washing machine. A new car? Yeah, right. It's preposterous to imagine consumers rebounding anytime soon, not when they're in debt up to their eyeballs.

Only a loon would tell you to buy certain consumer discretionary stocks. So, call me a loon, but this bird expects to make three to five times his money on stocks in this sector. And to accomplish that, I don't need consumers to make anything close to a complete recovery.

Consumer stocks are divided by needs and wants. Companies in the consumer staples category, such as Procter and Gamble (PG - commentary - Cramer's Take), sell needs such as toothpaste and deodorant. Consumer discretionary businesses, on the other hand, sell wants -- chock-full of bargains, this category includes retailers, restaurants, homebuilders, toymakers and travel-related companies, among others.

Over the next three to five years, owners of consumer discretionary stocks like Expedia (EXPE - commentary - Cramer's Take), Overstock.com (OSTK - commentary - Cramer's Take), CarMax (KMX - commentary - Cramer's Take) and Brunswick (BC - commentary - Cramer's Take) will see their stocks soar by 300-500%. A chunk of that is due to the rebound effect, but this gain will also inure from the companies' ability to rapidly adjust to a changing environment. This analytical layer is critical for consumer discretionary stocks: The big winners will be companies that can capture share coincident with adjusting to a smaller end market. The companies with flexible cost structures -- heavy on variable costs, light on fixed costs -- stand the best chance.

The only way to make 300-500% betting on selected consumer discretionary stocks is if the market has made a serious mistake. It has. It's not a mistake "in fact" -- consumers have been hurt, after all -- but it's a mistake in magnitude. Stocks that deserved a 20% haircut have been blistered by 80% or more.

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At time of publication, Alsin and/or ACM was long EXPE, OSTK, BC and KMX, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, a California-based investment adviser. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback; click here to send him an email.