Have you noticed how optimistic the City seems to be this year?
It’s easy to see why…
The stock market has almost doubled in the last five years, house prices are booming and the UK economy is growing again.
In fact, here at the Fool, we get asked almost every day…
“Are we in another bubble? Are we too confident about stocks and the economy?”
Those are smart questions to ask!
I mean, it’s seems like it’s been a non-stop party for anyone buying shares since 2009…
However, not everyone is feeling so buoyant – and there might be a way you can prosper.
You see, a recent survey by Nielsen revealed something fascinating about the recovery:
71% of Brits believe the UK is still in recession
That may seem unbelievable to those of us who’ve been profiting from the Bull Market for the last five years.
But consider how the average person would respond when asked how the economy is doing today…
And ask yourself, “Is there a way we can profit from that statistic?”
The average Brit is late to the Recovery Party
It’s been practically three years since the UK last entered a recession.
(And even that was the lame ‘double dip’, which lasted a grand total of nine months.)
The last serious recession we endured – the one that 71% of people seem to think is still ongoing – ended along with the financial crisis five years ago.
Yet the average British family is still not feeling confident about the economy, even though things are getting better.
Employment is rising, growth is accelerating and even the banks are lending again…
But it’s no surprise that the average Brit is late to the Recovery Party.
That’s because consumer confidence generally lags behind improvements in the stock market and sectors such as manufacturing and housing.
And what with all the government cuts – and “CRISIS” newspaper headlines playing on the public’s emotions – you can’t blame the British consumer for feeling nervous!
Despite things getting better, ordinary Brits are still feeling cautious about spending
True enough, the Nielsen survey also revealed that around two in every three households are changing their spending habits to tighten their belts…
But I don’t believe this will go on forever, if the economy keeps getting better.
And can you think of one sector of the stock market where this belt-tightening might be causing undue stress?
You guessed it – traditional retailers. Especially the supermarkets.
In fact, it’s no wonder supermarkets are still feeling the pressure…
They represent 54% of all UK retail spending, and 71% of their customers think we’re still in recession!
Stuck in the 2009 Bear Market
The UK-listed supermarkets are famously well entrenched, profitable and offer hefty dividend payouts…
But with most consumers yet to feel the full benefits of the economic recovery…
…it’s as if these shares are still stuck in the 2009 bear market!
- Tesco shares are down 42% from their pre-crisis high
- Morrisons shares are down 40%, and at their lowest level since 2006
- Sainsbury’s shares are down 49% since mid-2007!
Meanwhile there’s an IPO frenzy in the City, global markets are nearing all-time highs and tech stocks are still trading at eye-watering valuations…
Unlike the supermarkets, many other sectors have already enjoyed the benefits of the economic recovery.
And in my view, as growth accelerates, we should start to see the British consumer come back to life!
Of course, there’s no use waiting for the consumer to be vibrant again – by then, I’m convinced retail shares will have already recovered.
The time to act is often when things look the most miserable, and when everyone has written off the sector…
Ask yourself this:
If you could go back in time to 2009, when things looked miserable for stocks, what would you do?
I don’t know about you – but I’d be hoovering up cheap shares all over again.
And just like 2009, I don’t think it’s the end of the world for the supermarkets.
Yet the market is panicking, valuing shares such as Tesco at rock-bottom prices, based on the limp consumer spending we’re seeing today.
Will 71% of Brits think we’re still in a recession forever?
As the economy continues to improve, I doubt it.
In fact, I think the British consumer could awaken to improving conditions a lot sooner than some City analysts are expecting.
And when conditions do improve, we’ll start to see more people loosening their belts and spending a little more on their weekly shops.
At this stage, even a small improvement could mean a big difference for the likes of Tesco, Morrisons and Sainsbury’s.
All told, I think all three supermarkets look good value today and should deliver healthy gains as they recover in the years to come.
But I’m sure those 71% of Brits will never buy the shares and will miss the chance to profit.
Hunting for value
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The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.