Consumer spending summer stocks

The resilience of consumer spending – despite inflation, energy costs and higher interest rates – could see a range of ‘summertime’ shares shine over the current holidays and beyond.

From the companies providing the sausages for your barbeque to the airline flying you to your destination – there are numerous businesses that may see some momentum over the summer months.

A brighter outlook

After a winter of energy-price hikes, higher interest rates and food inflation, the consumer mood seems to have improved with the weather. Many people are travelling to festivals or abroad for the first time since lockdown. Household savings in the UK and EU appear to be holding up from the years when travel and leisure were curtailed. There’s an increased appetite for spending on clothes, socialising and other activities.

Consumer spending in the UK is up to almost pre-pandemic levels. In the EU, spending gradually climbed over 2022 to hit pre-Covid-19 highs. European gross domestic product (GDP) expanded 1% in the first quarter of 2023. In the UK, GDP rose by 0.2% in April, driven by leisure spending.

As a result, all kinds of summertime stocks, from hotels to hire-car companies, drinks manufacturers and airlines, may experience a boost. However, there are also several companies in the small- and mid-cap sector that we believe have the potential to do well – in the coming months and over the longer term.

Taking flight

Airlines and holiday operators are beginning to recover from the dual damage wrought by the pandemic and higher fuel prices. Jet2, the UK’s largest tour operator and third-largest airline, still has some way to go to recover revenues and share price. Nonetheless, the company is aiming to become a sustainable leader in air travel and holidays, and is investing in relationships with hotels that align with its standards. It continues to focus on destinations in the Mediterranean and major European cities.

Historic Italian company, Piaggio, manufactures one of the iconic vehicles of the summer – the Vespa motor scooter. The company has seen better-than-expected European demand in early 2023, thanks to China’s reopening, good summer weather (especially in southern Europe), and the shift of consumer demand towards recognised brands and luxury goods. A small exposure to electric and hybrid versions of its scooters, and a new production factory in Indonesia, have also contributed to improved performance. Trading on its respected European heritage, Piaggio aims to increase its presence in Asia where the Vespa is perceived as a luxury brand.

At your leisure

With parents, children and students off, there’s likely to be a growth in leisure spending. Among the hospitality and leisure stocks that could do well is Hollywood Bowl. This bowling business operates in the UK and Canada and has already reported that 2022 revenues are up – beating the pandemic years and pre-pandemic 2019.

The German event ticketing company, CTS Eventim, is one of Europe’s largest ticket providers for live entertainment. This includes pop concerts, classical music events, sports fixtures, and music festivals. Its revenues have climbed as people put lockdowns firmly behind them and begin socialising en masse.

Companies that provide all the ingredients for summer entertaining may also be back on the menu. We like food manufacturer Cranswick, which supplies global food producers with everything from gourmet sausages to premium cooked poultry. The company aims to make the summer barbeque as sustainable and ethical as possible with a traceable ‘farm-to-fork’ journey. High investment levels have strengthened Cranswick’s competitive position.

Final thoughts...

There’s no doubt that high rates of inflation, plus the rise in interest rates that fuelled much steeper mortgage and loan repayments, have dealt major blows to the consumer. Nevertheless, spending levels are still holding up as people appear determined to make hay while the sun shines.

The value of investments and the income from them can go down as well as up in investors may get back less than the amount invested. Past performance is not a guide for future results.

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance. Past performance is not a guide to future results.