An extended stock market market downturn such as the one we are experiencing now provides long term investors with an opportunity to gauge how well companies have been able to deal with harsh economic conditions. So today let’s have a look at four consumer spending related Australian listed companies and see how they have fared over the last five years.
The first stock is David Jones – a company that owns & operates an upmarket chain of department stores and was founded way back in 1838, so the company has certainly seen its fair share of difficult trading periods.
We would expect to see reflected in its share price a major correction during 2008, a recovery as the stock market bounced off the market low in 2009 but after that things will probably get a little hazy.
David Jones Ltd (ASX:DJS) 5 year Stock Price Chart
As we can see from the chart above, the David Jones (DJS) share price basically slumped during 2008, rallied during 2009 but has since struggled and has slipped back down near it’s multi-year low. The major reason for this is that consumers are in recession spending mode. This has also hit David Jones major rival Myer and many other companies in the retail sector.
Of course this is nothing new to the thousands of small business owners who have been struggling for years and for whom the economy is already basically in a recession.
I don’t expect 2012 will be too kind to David Jones or the other retailers, although they might start to see some light at the end of the tunnel in the later half of this year.
Another stock which gives us an insight into how consumers are feeling is Harvey Norman Holdings, although we need to be cautious about reading too much into this chart as HVN have significant overseas operations which are putting a drag on the share price. I wrote a little about this back in 2009 in: Stockwatch: Harvey Norman Holdings Ltd (HVN)
Harvey Norman Holdings (ASX:HVN) 5 Year Stock Price Chart
Clearly the last few years have not been good to Harvey Norman and the stock price trend for the last 5 years doesn’t look very promising. HVN are also having to deal with online sales via overseas websites but that’s called competition and I don’t recall Harvey Norman being too worried about using their bulk buying power to drive many small retailers out of business over the years. Online sales are here to stay so retailers are going to have to adjust.
Basically the HVN share price reinforces the view that consumer spending is in the doldrums and as with DJS, I don’t expect this year to be particularly kind to the company or its share price.
Now let’s look at a defensive type stock – Woolworths.
Woolworths Ltd (ASX:WOW) 5 Year Stock Price Chart
We can clearly see that the WOW stock price has pretty much performed as we would expect a defensive type stock to perform. Discounting the dash above $34 in late 2007, the share price is only slightly lower than it was before the GFC struck and has held up pretty well during a time when the Australian stock market has experienced some pretty major swings up & down.
When I look at this chart I simply note that although the share price has held up well it still below trading at a fairly subdued level, and so it appears even supermarket operators are experiencing tougher trading conditions.
But there is always a few stocks that don’t fit the script and one of those is Domino’s Pizza Enterprises – a stock I felt was a little pricey back when it was around $6.00!
Domino’s Pizza Enterprise (ASX:DMP) 5 Year Stock Price Chart
It seems when times are tough people really do like their pizza! Of course this is being over simplistic but my expectation a few years ago was that DMP shares would trade much like WOW shares – i.e. move in a fairly narrow range & do nothing spectacular either in terms of going up or down in value. Clearly I was wrong.
Obviously the management team at Domino’s Pizza have done well in executing their business plan over the last few years, but the stock still looks a touch pricey to me and personally I wouldn’t buy into it even if it fell back to $6.00.
What Domino’s does show however is that some companies are able to buck the trend and grow when others are struggling. These are the types of stocks investors like to pounce on but they are very often hard to spot until it’s too late to gain much from the run up in their share price.
Of the four stocks above the one which I am keeping an eye on is Woolworths as I feel there is potential for the WOW stock price to get back near $30.00 over the next few years. If this were to happen then it would turn out to be a nice little earner if you also factored in the dividends.
But please remember I urge all readers to do their own research and seek professional investment advice if required.
Greg Atkinson is the editor of Shareswatch Australia and the Managing Director of Ohori Capital & a Director at Eco Marine Power. He is originally from Australia but currently resides in Japan. He can be followed on twitter via @GregAtkinson_jp