QE3 and the Rich: What Stocks Will Benefit?

By

QE3 and the Rich What Stocks Will BenefitThe initial support for the third round of quantitative easing (QE3) has faded as the focus shifts to earnings, the economy, the pending fiscal cliff, and the presidential election. I think there’s a sense that QE3 is not the savior to the stagnant gross domestic product (GDP) growth in America, but is only a gamble. The reality is that the flow of easy money will largely reward the top one to five percent of income earners and, in turn, will benefit the high-end merchants in the retail sector.

A recent study from A.T. Kearney reports, “The richest consumers have a higher percentage of discretionary spending, and dominate not only such categories as hotel stays and financial services, but also hospital and outpatient services, as well as newspapers and magazines.” (Source: “A.T. Kearney Study of Global Wealth and Spending Projects $12 Trillion in New Consumer Spending over the Next Decade,” A.T. Kearney web site, last accessed October 24, 2012.)

Let’s not beat around the bush. The reality is that QE3 will help people who carry significant debt to lower financing costs for another three years. The low interest rates mean cheaper cash will be available for the rich to make more money and finance spending, whether that’s on investments, housing, or other high-cost ventures. This means the rich, with their larger pool of capital, can continue to increase their net wealth faster than the average American.

A viable investment strategy to play the effect of QE3 is to determine which companies in the retail sector will be the benefactors of the policy. (Read about my favorite Internet stocks in “Here are My Favorite Internet Plays.”)

A contrarian play in the high-end retail sector that could benefit from the decision of the Fed to launch QE3 is Saks Incorporated (NYSE/SKS), a seller of men’s and women’s fashion apparel, shoes, accessories, jewelry, cosmetics, and gifts. The most known banner is its “Saks Fifth Avenue” (SFA) stores that are free-standing or in higher-end malls.

Saks has been closing underperforming stores. As of September 5, its retail network included 45 SFA stores and 64 “OFF 5TH” stores, along with Saks.com.

I believe Saks has good potential to advance in the retail sector, especially given that QE3 will largely benefit the top five percent who control the majority of the country’s financial assets and those who are in the upper-Middle Class segment.

QE3 will also reward Coach, Inc. (NYSE/COH), a seller of high-end bags, purses, and accessories. Coach fell short on its fiscal fourth-quarter sales, but longer term, I see above-average potential for the luxury bag maker in the retail sector, especially in China, where the company reported same store sales growth in the double digits.

On the jewelry front, Tiffany & Co. (NYSE/TIF) is tops in the retail sector for high-end jewelry but, like Coach, Tiffany & Co. is battling some near-term bumps.

While Coach and Tiffany & Co. face some growth issues in the retail sector, you cannot say the same for high-end clothing retailer Michael Kors Holdings Limited (NYSE/KORS), which is estimated to report sales growth of 36.9% in fiscal 2013 and 25.3% in fiscal 2014, according to Thomson Financial. KORS beat on earnings-per-share (EPS) estimates by 122.2% in its fiscal third quarter and by 37.5% in its fiscal fourth quarter. Based on its operating results, Michael Kors could be a special stock in the retail sector going forward.

So, follow the rich, and I bet they will be buying at these aforementioned retailers in the retail sector.

Retire on one hot stock

Presenting Our Top Stock Pick for 2015!

It is one of the leading companies in its industry. With quarterly revenue of $800 million and growing this company is generating over $300 million every three months in free cash flow!

"A Golden Opportunity for Stock Market Investors" is yours FREE when you opt-in to get our daily e-letter Profit Confidential. With Profit Confidential you are receiving the opinions and commentaries of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate, and other investments so we can tell you what we believe today's financial news will mean for you tomorrow!

Combined, we have over 100 years' experience in analyzing various investment markets. Our analysts include MBAs, BAs, B.Comms, P.Engs, MAs, LLBs...and most importantly, years of experience investing and managing our own money successfully!

To opt-in to our FREE e-letter Profit Confidential and to get your FREE report, "A Golden Opportunity for Stock Market Investors," enter your e-mail address in the box below. You can unsubscribe at any time.

We hate spam as much as you do. Check out our Privacy Policy.

About the Author | Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »

  • Victor

    Not only will QE3 help the rich get richer as stated in this article, but it will increase the inflation rate when the velocity of money takes off in the future. This will hurt savers, especially retirees that can't get a job.

Related Articles

Video: Here is why you should be Bullish on Gold | By: Michael Lombardi

Poll

Would you vote for Donald Trump if he was the Republican Nominee?

View Results

Loading ... Loading ...
Profit Confidential
×
50.17.124.195
From: Michael Lombardi, MBA
Subject: Gold: The Stock Contrarian Investors’ Best Play of the Decade

Read this message