Inflation created a big opportunity for discount retailers.
“Inflation is crimping into household purchasing power,” said Beth Ann Bovino, the U.S. chief economist at S&P Global, as quoted by The Wall Street Journal. “Even if wages are high, inflation for goods is even higher. You want to celebrate that larger paycheck, but you can’t because you can’t buy as much stuff with it anymore.”
Also, consider this. According to Michael Gelman at the University of Michigan and colleagues’ paper, The Response of Consumer Spending to Changes in Gasoline Prices, gasoline spending was 3% of the household budget when gas prices were at $2.
With oil prices now double that amount, it suggests gasoline spending is now closer to 6% of the household budget. “The research suggests that spending on gas is likely to cause a corresponding drop in spending elsewhere in household budgets, working out to approximately be a 3% reduction,” added Forbes.
In response, consumers gravitated to discount retailers. So, it came as no surprise that stocks like Dollar General (DG) just boosted its guidance, and jumped from about $195 to $222 a share. Even Dollar Tree (DLTR) soared from about $130 to $162.80 on earnings.
Further proof that crises can lead to opportunity.
Just yesterday, we noted, “After a vicious pullback in the markets, it appears we may be bottoming out. If that’s the case, keep an eye on beaten down tech stocks, like Advanced Micro Devices (AMD). Not only has growth been explosive, but the company continues to chip away at competitor market share, which should continue for some time.”
Not long after that note, shares of AMD would explode from a low of about $92 to an intraday high of $100.25. Helping, AMD just completed its $1.9 billion purchase of Pensando Systems, which the Street seemed to like. And Bank of America said Advanced Micro Devices is one of its favorite chip stocks.
If the bottom is finally in for tech, stocks like AMD could see higher highs, we believe.
Insider Buying: Uber Technologies (UBER)
CEO Dara Khosrowshahi just bought 200,000 shares of the stock between $26.64 and $26.775. All after the company told employees that Uber Technologies plans to cut costs and “react accordingly” to the unexpected change in investor sentiment.
Better, in its most recent quarter, “Uber said revenue grew more than twofold from a year earlier to $6.85 billion. Analysts polled by FactSet expected revenue of $6.09 billion. Revenue was also helped by high ride prices,” as noted by The Wall Street Journal.