Consumer Staples Vs. Consumer Discretionary

When our analysts Mike Burnick and John Jagerson shared predictions for the second half of 2023 in Constant Cash Flow, something immediately jumped out at me during the conversation.

The difference in performance between consumer staple (essential) stocks and consumer discretionary (what people want but don’t necessarily need) stocks.

When fears are high that we could be entering into a recession, folks tend to gravitate towards owning shares of consumer staples because those companies provide products like toothpaste and toilet paper — things you’ll always have to buy.

But as Mike and John shared, if people are worried about the economy, it’s not showing up in the performance of consumer discretionary stocks.

Just look at how the iShares US Consumer Discretionary ETF (IYC) has outperformed the iShares US Consumer Staples ETF (IYK):

Armed with that information, we can look inside the iShares US Discretionary ETF and review the individual holdings. Because while owning an ETF can be a good move for those who like investing in an industry or theme but want to limit their downside, owning an individual stock will always provide more upside.

And within those holdings was a familiar name that just triggered an Entry Signal in our system on July 10: Delta Air Lines Inc. (DAL).

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From Dust Cropper to Passenger-Packed Planes

In 1920, Thomas Huff and Elliot Daland were tinkering away on an aircraft manufacturing company in New York, going on to form the Huff-Daland Aero Co.

They produced observation planes and light bombers for the United States Army and Navy, but they were also innovators by creating the first aircraft designed for crop dusting, selling it through their subsidiary Huff Daland Dusters.

Appointed to sell what at the time was an experimental service through this subsidiary was Collett Everman “Wooly” Woolman.

Seeing that the need for crop dusting services dramatically decreased after the summer growing season ended, Wooly’s entrepreneurial spirit animal kicked in, as he created a unique agreement with a company in Peru to form a passenger air service.

The partnership didn’t last long, but he took what he learned back to Louisiana, teamed up with a banker and local investors, and bought Huff Daland Dusters.

In 1928, he incorporated it as a new company called Delta Air Service, naming it after the Mississippi Delta region.

Today, you know it as Delta Air Lines, and the company just reported a runaway earnings report success.

Not only did net income of $1.83 billion smash last year’s total of $735 million for the same period, but Delta also reported a record profit of $1.72 billion.

And to add a second cherry on top, its airport passenger volumes hit a record on June 30, the highest summer revenue day for the company.

As in… highest… ever.

But what’s most important to share is how this could be a “preview of coming attractions” — giving us a glimpse of just how high Delta’s shares could soar over the next year. I’ll reveal that in just a bit.

Because there were some other forward-looking nuggets within that earnings report from CEO Ed Bastian.

He says that this rebound in travel isn’t a short-term phenomenon — you know, one that will flame out.

Instead, it’s a systemic change in how and where consumers are spending their time and money.

Said Bastian: “They’re not interested in buying houses or cars or boats or electronics, but they are interested in traveling.”

Bastian also noted that people are booking their travel escapes well into September and October — a de facto extension of the travel-season norm.

And once you run these epiphany-level insights through the TradeSmithuniverse of investing tools, we end up with a very clear view of the profit opportunity in Delta.

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Proprietary Moneymaking Signals

The first signal comes from our flagship Health Indicator.

It’s a simple — yet powerful — system that gives you a single-glance ruling on whether a stock is considered in a healthy and investable state, whether it requires a more cautionary analysis on whether to own it, or if it’s flashing a “red-light warning” to stay away at all costs.

Delta is currently in our Green Zone and as we mentioned earlier just flashed an Entry Signal on July 10.

The next leg of our investing “toolkit tour” takes us to Jason Bodner, the inventor of the Quantum Edge investing system. He’s able to see real-time data on the stocks that some of the wealthiest and smartest investors in the world are buying or selling, letting you piggyback on their moves to find your own success.

Even as prices climbed higher, Big Money hasn’t been afraid to scoop up this stock, showing that these Wall Street heavy hitters believe prices will climb even higher.

And our final leg of the “toolkit tour” brings us to our friends at LikeFolio who use Twitter data to know what Main Street investors are saying before it becomes news on Wall Street.

With their proprietary data for Purchase Intent Mentions — how many customers have already bought a product — or plan to do so — the demand to fly is surging.

Not only is there a 28% increase in Purchase Intent Mentions quarter-over-quarter, but there’s a 41% surge in Purchase Intent Mentions year-over-year.

Over the next 12 months, some of the most bullish price targets on Delta say the stock price could climb to $71 per share.

Delta is trading for $48.55 as of this writing.

And from what we’re seeing within our tools… that isn’t a “sky-high projection.”

It could turn out to be justified.

Enjoy your Sunday,

Keith Kaplan
CEO, TradeSmith