Well, folks, it looks like U.S. consumer was alive and well in July. The Commerce Department announced this morning that retail sales rebounded 0.6% last month, well above the previously reported 0.3% decline in June. June retail sales were also revised higher today to show no change that month.
What’s interesting is that Americans were more than willing to splurge on big-ticket items last month, mainly automobiles. I guess low energy prices and cheaper gas at the pumps is driving consumers to auto dealerships this summer. There was a 1.4% increase in automobile sales in July, which helped boost overall retail sales.
Of course, when considering the biggest beneficiaries of rising demand for vehicles right now, General Motors Co. (GM) and Ford Motor Co. (F) top the list. However, neither of these companies would earn a spot on my Buy List now.
Take General Motors, for example. The Detroit behemoth is making a comeback, as adjusted earnings per share surged 122% in the second quarter. But sales dipped 2.5% year-over-year. So it’s no surprise that the company earns a D-rating for sales growth.
Looking forward, General Motors’ sales are expected to continue to slide, down 1.4% in the third quarter, 1.9% in the fourth quarter and 2.9% in full-year 2015. Plus, while the company earns an A-rating for earnings growth, analysts have revised their second-quarter earnings estimates three cents lower in the past two months. So, overall, General Motors earns a C-rating and is a hold.
Then there’s Ford, which recently posted its best quarterly profit in 15 years. In the second quarter, the automobile manufacturer’s revenue was basically flat at $37.3 billion, while net income increased 44% year-over-year. Earnings per share were $0.47, up 17.5% year-over-year and walloping estimates for $0.37 by 27%.
Just like General Motors, though, Ford earnings a D-rating for sales growth, as sales are also projected to slow down in the coming quarters. About 8% sales growth is expected in the third quarter, 6% in the fourth quarter and only 2% in full-year 2015. Couple that with poor operating margin growth (another D-rating) and Ford earns an overall D-rating from Portfolio Grader. So it’s currently a sell in my book.
While the automobile industry may not be ripe for the picking right now, there are other ways to benefit from the resurgent U.S. consumer. In fact, the retail sector is filled with A-rated, strong buys—and they may be worth a second look as the U.S. consumer continues to spend and the U.S. economy strengthens.