PowerTrend Brief: Demographic Shift Sparks Investment Opportunity

Hello and welcome back as we continue to ferret out key data and information that is the foundation of PowerTrend investing. Such data help to identify shifts that shape and impact consumer behavior, forcing companies to make fundamental changes to their businesses to succeed. With the stock market reaching new highs, amid low volumes and economic data that is fanning the flames of concern as the overall market rally looks tired, it is better to focus on areas where there is a long-term bull opportunity.

Let’s get started with this week’s PowerTrend Brief. If you want a recap of my write-ups for the last few weeks, click here.

Despite the favorable sequential increase in February retail sales reported by the Census Bureau this week, my analysis of the data showed the greatest increase was at gas stations. It was not much of a surprise, given the increase in the average price per gallon of gas to $3.72, up 10% from the average price of $3.39 at the end of January. Did this situation take a toll on the other components — probably so. Data from Black Box Intelligence revealed the increase in gas prices contributed to weakening restaurant industry same-store sales and guest traffic in February. The report found that industry same-stores increased 2.5% — with both food and alcohol sales up for the month. Guest traffic, however, fell month over month even though it started out strong in the first part of February due to favorable weather.

Consumers Start to Feel the Pinch at the Pump

This situation confirms the concern I raised with you just a few weeks ago. As gas prices, now at $3.82 per gallon, according to AAA’s Fuel Gauge report, continue to rise, odds are The Cash Strapped Consumer PowerTrend indicates reduced spending in March. For the record, I have to wonder what the Fed means when it says it expects the rise in oil and gasoline prices to only “temporarily” push up inflation. As Fed Chairman Ben Bernanke said in early February, the willingness of consumers to spend will be an important determinant of the pace at which the economy expands in coming quarters. With gas prices grinding higher, it comes as little surprise that Bernanke sees only modest U.S. growth for the balance of 2012.

Rising Singles and Divorce Rates Reshape the Lives of Older Americans

One of the key aspects of my Living Longer Lives PowerTrend centers on the goods and services that are needed and consumed by an aging population. Needless to say, I tend to pay close attention to emerging trends among that demographic. In particular, there are two that have caught my attention in part because of the potential ripple effect they will have not only on society but on incremental demand for goods and services, not to mention economic policy.

In 1950, roughly 4 million Americans lived alone, and they made up only 9% of households. Back then, going solo usually was a short-lived stage on the road to a more conventional domestic life. Skip ahead to 2011’s census data and we find there are nearly 33 million people living alone and that group makes up 28% of all U.S. households. To put that in perspective, people who live alone now are tied with childless couples as the most prominent residential type, more common than the nuclear family, the multigenerational family and the roommate or group home.

The second emerging trend is the rising divorce rate among couples in their 50s and 60s. Faced with the prospect of a decade or more in unhappy marriages, the data shows those couples are reluctant to stay the course. Over the past 20 years, the divorce rate among baby boomers has surged by more than 50%, even as divorce rates overall have stabilized nationally. As I mentioned above, more adults are remaining single. About a third of adults ages 46 through 64 were divorced, separated or had never been married in 2010, compared with 13% in 1970, according to findings from Bowling Green State University. Sociologists expect those numbers to rise sharply in the coming decades as younger people, who have far lower rates of marriage than their elders, move into middle age.

The combination of more people living alone and rising divorce rates among baby boomers is changing the traditional portrait of older Americans. The result is more people on their own and needing to care for themselves, save for their retirement, pay their own rent or mortgage, utilities and so on. Quite simply, this shift will drive incremental demand in an a number of areas — banking and financial services, consumer durables, housing, insurance and more — that offer prepared investors opportunity. I’ll share more about this situation in the coming weeks.

Non-tech Companies Embrace Tech

A growing phenomenon that I am keeping my eyes on is companies embracing technology to enhance their competitive position while also enhancing the consumer experience. Starbucks, in particular, has one of the slickest mobile payment apps going that works without any changes at the point of purchase. That means point of sale equipment sold by VeriFone or Ingenico SA does not have to be modified and there are no additional NFC chips needed in your smartphone from NXP Semiconductor or newly public Inside Secure to assist with the transaction. The use of cutting-edge technology to enhance the consumer experience is pretty good for a company whose core business is coffee/tea drinks, as well as tasty snacks and treats. But Starbucks has been at the forefront and aims to remain there. The company recently upped the role of its chief digital officer and expanded his team to further leverage its web, mobile, social media, card, loyalty, e-commerce, Wi-Fi and the Starbucks Digital Network offerings.

Another item that I would throw into this category is a new Fuelband offering from Nike. The key is bringing utility in a simple way that complements what the consumer will be doing, whether it is drinking coffee, working out or whatever. While it may sound a bit trite, the company doing the best job of this is Apple. The technology leader focuses on the entire consumer experience to drive loyalty. I would argue that this mindset is lacking at a number of its would-be competitors.

As more companies embrace the potential of using technology to enhance the experience of its customers, I’ll share them with you.

Next Week

As I have said time and time again, successful investing requires not only access to data and information, but enough time to put all the pieces of the puzzle together. Here’s what I’ll be watching next week:

Monday, March 19
NAHB Housing Market Index (March)
Adobe Systems (ADBE)
Talbots Inc. (TLB)

Tuesday, March 20
Housing Started & Building Permits (February)
DSW Inc. (DSW)
Oracle Corp. (ORCL)
Tiffany & Co. (TIF)

Wednesday, March 21
Existing Home Sales (February)
General Mills (GIS)
Shoe Carnival (SCVL)

Thursday, March 22
Weekly Initial & Continuing Jobless claims
ConAgra Foods (CAG)
FedEx Corp. (FDX)
Nike Inc. (NKE)

Friday, March 23
Leading Indicators (February)
New Home Sales (February)
KB Homes (KBH)

Thanks for reading and have good fun this St. Patrick’s Day!

Sincerely,

Chris Versace
Editor, PowerTrend Brief

P.S. Please join me for the Las Vegas Money Show, May 14-17, at Caesar’s Palace. To register, call 1-800/970-4355 and mention priority code 026656 or go to ChrisVersace.lasvegasmoneyshow.com.