Consumers show some easing of inflation concerns - watch these stocks
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A survey by Jefferies survey indicated that consumers in the U.S. are feeling less discomfort than in the recent past.
Although the inflation rate is still high, the survey showed a slight improvement in general sentiment vs. the June survey with 32% of respondents having more confidence in their finances vs. 25% in June and a mere 17% in April. Slightly fewer respondents expect prices to be much higher over the near-term and slightly more anticipate a shallower increase.
Jefferies thinks much-discussed names such as Dollar General (DG), Costco (COST), Walmart (WMT) and Target (TGT) are likely to benefit from an ongoing consumer trade down and expects robust consumables offerings to support sales trends ahead. Retailers Ulta Beauty (ULTA) and e.l.f. Beauty (ELF) are also called out as names that could benefit as consumers show wariness with high prices, but keep spending through new channels.
Notably, 80% of survey respondents cited grocery as the category where they have witnessed the biggest change in price over the past 12 months.
"The October survey results highlight that financial strain caused by grocery spend and expected further inflation is leading consumers to consider trading down and purchasing fewer items, posing a risk to volume elasticities of branded CPG," warned Jefferies. 
While Q3 earnings results were solid in the food and grocery sector, Jefferies sees some risk seen if consumers start to push back more forcibly on high prices. Management teams have already highlighted that consumers are prioritizing grocery spend, especially snacking items that are considered affordable indulgences over discretionary categories, according to Jefferies analyst Rob Dickerson.
The overall takeaway from Jefferies is that food companies with lower category private label exposure will perform well, as will those with a strong presence in diverse retail channels that can meet the wide-ranging needs of different consumers. Mondelez (NASDAQ:MDLZ) and Hershey (NYSE:HSY) are highlighted as two food stocks that may be in the right spot in that regard.
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