The U.S. consumer sector has lagged this year, but there are opportunities, says Michael Orndorff, vice president and portfolio manager at American Century Investments. He co-manages the Renaissance U.S. Equity Growth Fund.
One of the most interesting and profitable sectors is media, he reveals. Despite strained profits, these businesses have kept up marketing and ad spending.
He adds this is a surprise, since companies spent more than usual to advertise during the 2012 Olympics and the U.S. federal election.
“It looks like ad spend numbers will be positive overall this year,” he says, despite lower forecasts.
What’s more, if companies continue to promote their products and services, consumers will be driven to make more purchases and support the economy.
In particular, Orndorff’s keeping an eye on media content companies. They spark his interest because they not only benefit from ad spending, but also “[profit] from the secular trend of television being available on every device,” including tablets and smartphones.
He adds, “Companies that are in the business of streaming content to [these] devices, are collecting a new revenue stream.” As a result, many other businesses are looking at offering this service to customers as a way to capitalize on current trends.
However, flagging American consumer activity has affected companies operating in the specialty retail space in particular, Orndorff points out.
This slowdown started in December, at the tail end of Q4 2012. It’s continued to weigh on U.S. company earnings throughout January and February of this year, he adds.
Three issues are plaguing U.S. businesses. These are:
- Higher U.S. payroll taxes: a 2% increase was implemented at the start of 2013
- Delayed income tax refunds: the IRS wasn’t set up to accept tax returns at the start of the year. So there’s been a general delay in tax-refund filing and some consumers have been hit with lower incomes
- Ongoing fiscal discussions: These have dampened consumer sentiment and markets
Even though stock markets have improved, there’s a tone of cautiousness running through U.S. consumer stats due to these factors.