Consumers May Soon Be Down, But They Won’t Be Out

Consumer spending makes up about 70 percent of the US economy. Currently, sales remain strong, but there are some signs that consumers may be increasing their credit card usage to do so. If that continues, it’s likely that spending will start to come down in some parts of the economy.

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  • However, some retailers could benefit from that trend. Discount stores tend to hold up well no matter what the economy is doing for groceries or other basic supplies.

    In the clothing space, off-price retailers may be the winners here. That’s good news for stores like TJ Maxx (TJX) and Ross Stores (ROST).

    Both are near 52-week highs, but continue to garner investor interest.

    Of the two, TJX has a bit more diversification in its product offerings. At 22 times forward earnings, it’s not cheap. But shares are up 10 percent over the last year, even before consumers have started to shift to more downscale spending.

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  • Action to take: Investors may consider buying here, with an eye towards adding on any pullback in the weeks ahead. Shares currently offer a 1.5 percent dividend yield.

    For traders, the April 2023 $85 calls, last going for about $3.85, could deliver high-double-digit returns or better. Shares should continue to rally as the holiday shopping season.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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