We going to see record spending into the fall with back-to-school and holiday: Analyst
Lauren Hill, Westwood Quality Value Fund Co-Portfolio Manager and Consumer Research Analyst joins the Yahoo Finance Live panel with the latest on the markets.
Video Transcript
ZACK GUZMAN: Of course, we've seen a return to green today. Last week was a bit jittery, as we talked about the Fed kind of coming out with their inflation outlook and everything Brian just highlighted. But what about the strength of the consumer? Could it be reason to pile in on some of the names that could see some strength around the strength of the consumer?
And joining us now for more on that is Lauren Hill, Westwood Quality Value Fund Co-Portfolio Manager and Consumer Research Analyst. And Lauren, I know you like kind of what you're seeing for maybe the continued strength of the US consumer. Talk to me about how you see it playing out when it comes to how investors should be playing it.
LAUREN HILL: Absolutely. So I think right now, there's a lot of concern in the market that this last round of stimulus was kind of one and done. But I actually think spending's going to be more sustained than a lot of investors suspect for three main reasons. So the first reason is what I lovingly call as the boomers plus. Those are all the US consumers ages 55 and older. They are just 29% of the population, but they control over 70% of US wealth.
So how they spend and how they return to old shopping patterns makes a huge difference in the US economy. So they were the most reluctant to get out during the pandemic. But as of now, over 75% have had at least the first shot of the vaccine series. And they're returning to their old shopping ways. They're prioritizing catching up with family and friends.
And I think that's a trend that's going to last at least two to three years. And they're spending on social interaction categories for the first time in a really long time. So that's beauty and retail and shopping and clothes and restaurants and hotels. And so they're getting out and about. And they're returning to their old ways. So it matters a little bit less what the younger consumers are doing. And we're seeing really encouraging trends there.
The second point would be we have $6 trillion of savings versus less than $1.7 trillion before the pandemic began. And I see that being spent down in a very orderly way over time. If things run hot and we see too much inflation in any one category, the US consumer is very smart, and they're going to just shift their spending to another category that's more compelling. They're not going to stop spending. I don't think it's going to force the Fed's hand. And I think that that spending is going to last quite a while.
And then finally, we're having this very positive wealth effect. The Case Shiller Home Price Index is up 13% year on year. We're seeing double digit gains in the market for a second year in a row. And that tends to translate into higher consumption six months down the road. So I think that we're going to see sustained spending into the fall into holiday with record back to school and holiday spend. And that's going to last well into next year.
AKIKO FUJITA: So Lauren, getting back to your first point, what you called the boomer play, if it is about those who have sort of been locked up, really the most cautious over the last year, going out and spending a bit more, to what extent have we already seen that? How much more upside are we likely to see? And if we're talking about how this is likely to play out in the markets, what are the names you put your money behind on the back of that expectation?
LAUREN HILL: Yes, so they are out and spending. And there's-- but there's still tremendous pent-up demand, especially for those social interaction categories and with people spending more time with each other. And I think there's a few ways to play that. So three stocks that I really like at this moment are 1-800-Flowers. That's ticker FLWS.
And what they saw during the pandemic was they picked up a tremendous amount of customers, both at the high end and low end. So they had a whole bunch of baby boomers who usually buy gifts in person, move online to e-gifting, which is a huge secular trend. And instead of buying the $20 house plant, they went and they purchased the $200 orchids because they could. And so they're higher margin and higher sales customers than 1-800-Flowers's core base.
At the same time, 1-800-Flowers bought pmall.com, or PersonalizationMall. And that has a lot of lower price point items. So instead of sending a $40 or $50 bouquet of flowers, you can send a $10 mug to a loved one. And so that's bringing even new-- more new customers to their base. Their customer satisfaction rates remain in the high 90s. And so they're retaining all these new customers that were just kind of brought forward more quickly than they would have been if we hadn't had the pandemic. So that's a stock I like long term.
Two others are Mohawk, ticker MHK. And they really have a huge pro flooring business. Over the past year, people were really reluctant to let pros into their home, and they focused on a lot of do-it-yourself projects. The home spending continues to be really big. But we're seeing a shift from do-it-yourself more to the pro business, as people were more and more comfortable letting people into their homes again to do the work. So Mohawk's a great way to play that trend.
And then finally, Walmart. Some COVID winners just keep winning. And consumer traffic patterns are very sticky. And so all the essential retailers picked up a lot of traffic this past year. And I think that they're going to hang on to the vast majority of it. At the same time, we're seeing a mixed shift from grocery more towards general merchandise, which is higher margin. And then finally, Walmart has the Walmart Plus program. And I think that's going to be a huge benefit for the business, helping it be steadier and higher margin over the long run.
ZACK GUZMAN: Yeah, and we saw Walmart also gain quite a bit here, I guess, in terms of riding the coattails of Prime Day, which is continuing. So there are deals out there, and the strength of the consumer continues. Lauren Hill likes what she sees. Appreciate you coming on here to chat with us, though. Westwood Quality Value Fund Co-Portfolio Manager and Consumer Research Analyst, thanks again for the time.
