Does your portfolio need food?

In the viscous market we are seeing it pays to look for stocks that hold up well in weak markets and strained economic circumstances. With the possibility that some global markets could be dragged back into recession investors must plan for tighter spending by consumers. Your action plan should be to look for what I call “consumer downgrades.”

Tight wallets

If you read the business section or business magazines you have certainly noticed that it is not just Greece and Spain that are implementing austerity measures. Right here in the U.S. we have states running massive deficits, cutting spending, cutting jobs and cutting services. That is not to mention the 10% unemployment (20% underemployment). In the U.K., Germany, and France we are seeing huge cuts in spending and benefits to workers and retirees.

In the end less money in people’s pockets means lower spending. When people want to cut down their spending they do more for themselves or downgrade. When it comes to eating folks either cook more at home or downgrade restaurants from the Olive Garden or Friday’s to Chipotle and Panera. This was the topic of a recent article in the Financial Times (FT). Below is a quote from Greg Farrell’s FT article US ‘fast casual’ food sales grow,

“Panera Bread and Chipotle Mexican Grill, which together make up more than 25 per cent of the fast-casual segment – which sits between fast food and casual restaurant dining – both posted double-digit percentage increases in first-quarter sales over the same period the previous year, driven by the opening of new outlets and robust increases in same-store sales.”

Playing with your food

So, if you believe as I do that we are in for a long period of high unemployment and constrained spending you should look at investing in something we all must do – eat. You can play with your food with the PowerShares Dynamic Food and Beverage ETF (ticker PBJ). This fund has held above its 200 day EMA in this recent (April-May 2010) sell off in the market. Looking inside the ETF you will notice that the top holdings are McDonalds, Starbucks, Yum Brands, Chipotle, Panera, General Mills, Heinz, Coca Cola, and Kellog. What you will notice is that these are companies that benefit from either consumer downgrades, people cooking at home, or expansive growth in Asia.   One other factor in favor of some of these companies is declining commodity prices as it increases profit margins.

Chart courtesy of StockCharts.com

Disclosure Statement: ETFGPS is a blog that Navigates The World of ETFs. Sustainable Investment Strategies LLC is a Registered Investment Adviser in the State of Maryland, and does hold positions in ticker PBJ at the time of writing. Investors who are interested in money management services may visit the Sustainable Investment Strategies LLC web site

Tagged as: Consumer Downgrades, Food, PBJ