A bullish portfolio manager shares why there won’t be a recession as GDP growth reaccelerates — and names 8 stocks set to benefit from strong consumer spending
- The US economy is accelerating after GDP growth rose 4.9% in the third quarter.
- Portfolio manager Razmig Pounardjian sees no evidence that a recession is coming anytime soon.
- Here are eight consumer-focused stocks that will perform well as spending continues.
Although not all bearish economists are willing to admit defeat on their recession forecasts, optimistic portfolio manager Razmig Pounardjian is declaring victory on his soft-landing prediction.
“Based on the economic data that I’ve seen and what you read and hear about, I do not expect a recession,” Pounardjian told Insider in a recent interview. “We’ve been talking about a recession for the last 16 months, and yet, it hasn’t happened.”
He went on to say: “If you look at a lot of the unemployment data, you look at the inflation data, you look at industrial production, consumer spending — which is 70% of our gross domestic product in a given year — those are all trending in a positive direction.”
Bulls are ecstatic after US GDP growth hit 4.9% in the third quarter, exceeding high expectations and more than doubling figures from the first and second quarters. Despite high interest rates and pesky inflation, strong spending fueled the gain.
Concerns that tight financial conditions will lead to a recession are exaggerated, according to Pounardjian. Carnegie Investment Counsel’s portfolio manager noted that interest rates are high due to persistent inflation, which he believes reflects consumers’ ability to continue spending.
“Interest rates go up because the economy is strong,” Pounardjian explained. “Rates would be lower if the economy were weakening.” As a result, I believe that a recession is unlikely.”
A recession appeared to be almost unavoidable a year ago. Inflation was skyrocketing, as were interest rates, and GDP growth had already slowed in consecutive quarters. The case for a recession appeared clear — perhaps too clear, as Pounardjian put it.
“What was it at the end of last year, 100% of economists or 60% of economists predicted a recession?” And, of course, there is no recession,” Pounardjian explained. “There’s a saying, ‘The market fools the most amount of people,’ and I think that’s what’s happened this year,” he said. He went on to say, “a lot of people were expecting this big recession to happen, and it just hasn’t.”
8 ways to profit from rising consumer spending
While many of his colleagues sold stocks last year, Pounardjian remained calm and kept his clients’ money in the market. He’s relieved he did.
“It’s not intellectual to sound bullish and optimistic,” said Pounardjian. “You sound a lot smarter when you say, ‘The world’s coming to an end, and there’s a 40%, 60% chance of a recession.’ You simply sound smarter.”
“But, at the end of the day,” Pounardjian continued, “my job is to manage people’s money, and I have a glass-half-full kind of worldview.” There will always be bad things in the world; it is never peaceful. And there’s an old adage that goes, ‘Don’t bet on the end of the world; it only happens once.’ So that’s how I approach investing. It’s like, ‘Well, if the world ends, we’re all screwed anyway, so why not stay invested?'”
Pounardjian predicts that consumer spending will remain resilient in 2024, despite worsening sentiment, in a classic case of the “everything’s terrible, but I’m fine” phenomenon coined by Derek Thompson of The Atlantic. Prices and borrowing costs may be high, but workers have received significant raises in the last year to compensate, according to the portfolio manager.
Even if interest rates are not cut, inflation should fall further next year, according to Pounardjian. However, he believes that if inflation continues to rise, it will be one of the most serious threats to the economy.
Pounardjian believes that if the US economy avoids a recession, investors should focus on consumer-focused stocks. They’ve already priced in a lot of bad news, and many pay sizable dividends that can keep a portfolio afloat if there’s more economic turmoil ahead.
“The baby gets thrown out with the bathwater, and the market shoots first and asks questions later,” said Pounardjian of consumer stocks. “So they sell everything first, and then after things kind of settle down a little bit, then people realize, ‘Oh, maybe this is a little overdone.'”
The following are eight consumer staples stocks owned by Pounardjian, his clients, or both. These are long-term investments that he considers appealing due to a combination of compelling relative valuations, earnings and revenue forecasts, and capable management teams.
Each company is listed alphabetically, with its ticker, market capitalization, previous close, industry, and Pounardjian thesis.
1. Brown-Forman
Ticker: BF.B
Market cap: $27B
Previous close: $55.96
Industry: Beverages — Wineries & Distilleries
Thesis: According to Pounardjian, the maker of Jack Daniel’s and other products has scarce assets and trades at an enticing valuation. He believes the company will recover after being dragged down by the recent market downturn.
“They have a very long-term vision,” said Pounardjian. “They’re not concerned about earnings or revenue targets for the coming quarter.” They are concerned about how they will manage in five, ten, or fifteen years. That is how I think about investing money for both my clients and myself.
2. Church & Dwight
Ticker: CHD
Market cap: $22.7B
Previous close: $92.20
Industry: Household & Personal Products
Thesis: Church & Dwight has a diverse product portfolio that includes Arm & Hammer, Waterpik, and Trojan. Pounardjian stated that the company’s next goals are to increase its scale and international presence.
3. Costco
Ticker: COST
Market cap: $242.4B
Previous close: $547.60
Industry: Discount Stores
Thesis: This wholesale behemoth has an army of devoted customers who generate consistent, recurring revenue year after year in addition to purchasing in bulk. Pounardjian believes Costco will be well-positioned if the economy slows, though he would like to see the company expand outside of the United States.
4. McCormick
Ticker: MKC
Market cap: $17.3B
Previous close: $64.44
Industry: Packaged Foods
Thesis: McCormick is a spice company that is trading just slightly higher than its pandemic low after missing sales and earnings estimates in the most recent quarter. Pounardjian, on the other hand, believes the cooking-from-home trend will be a long-term boon for the battered company.
5. Nestle
Ticker: NSRGY
Market cap: $293.5B
Previous close: $109.52
Industry: Packaged Foods
Thesis: Nestle is best known for its chocolate, but it also owns the pet-food company Purina and the baby-care company Gerber. Before its stock, which has been flat over the last year, can rally, the company must now protect its profit margins from inflation while generating growth.
6. PepsiCo
Ticker: PEP
Market cap: $221.9B
Previous close: $161.41
Industry: Beverages — Non-Alcoholic
Thesis: This beverage and snack company has strong revenue and earnings growth, but has been hampered this year by concerns about the impact of weight-loss drugs like Ozempic and Wegovy on demand. Pounardjian, on the other hand, believes those concerns are exaggerated because he hasn’t noticed a slowdown. Furthermore, Pepsi is increasing its dividend and trades at just under 20 times forward earnings.
7. Post Holdings
Ticker: POST
Market cap: $5B
Previous close: $80.78
Industry: Packaged Foods
Thesis: Post Holdings also sells dog and cat food in addition to cereal. Pounardjian noted that it acquired pet-focused brands from jam maker JM Smucker, significantly expanding its presence in that sub-industry. Post, according to the portfolio manager, is led by the “Warren Buffett of the food industry” in chairman Bill Stiritz, and he expects the company to create value for shareholders by buying back stock while cutting costs.
8. Walmart
Ticker: WMT
Market cap: $435.4B
