Most economic activity is driven by consumer spending. That’s why changes in consumer spending can cause stocks to rise or fall. Some areas can hold up well, particularly those consumer goods or services that offer reasonable quality at a reasonable price.
That’s because a slowing economy will cause consumers to shift to lower-price options rather than stop spending entirely. That may not be good news for upscale brands or services, but for some companies, it may indicate higher share prices ahead.
Darden Restaurants (DRI) fits the bill for this phenomenon. The owner of Olive Garden, Capital Grille, and Bahama Breeze, among others, offers a quality restaurant experience for those looking to dine out without a massive budget.
That may be why shares have been trending higher for nearly a year, and why the stock is still near its all-time high. Plus, shares aren’t overly expensive right now, trading for about 17 times earnings.
Action to take: Darden’s brands are likely to hold up well in a slowing economy, and are reasonably priced as a buy today. Investors may also like shares here thanks to the 3.1 percent dividend, which also has a history of growing.
For traders, the July $155 calls, last going for about $6.70, are near-the-money and can see a mid-double-digit move higher in the coming months on a further rally for shares.
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.
