The state of consumer spending in the U.S. is tricky to call right now . On the one hand, inflation is hitting some consumers hard. The University of Michigan Consumer Sentiment Index fell to an all-time low in June, although it slightly improved in July, data on Friday showed. The Bureau of Economic Analysis reported Friday that real spending adjusted for inflation increased just 0.1% as consumers barely kept up with inflation. Mass market retailers have reported that shoppers are retreating to lower-margin items, with Walmart — often considered a bellwether for the overall economy — cutting its profit guidance . On the other, high-end retailers and restaurants, along with card issuers, have said that spending is still holding up despite higher prices. Either way, it’s certainly a key metric to watch when assessing recession risks: the consumer accounted for 68% of all economic activity in the first quarter. “Commentary on the health of the U.S. consumer continues to oscillate between a strong [and] healthy balance sheet’ and ‘weak & pressured by inflation.’ Investors are rightly wondering which is right,” said Bank of America. What does all of this mean for consumer-related companies, and will they hold up in a recession? Wall Street analysts pick the stocks they say are resilient, even as the economy slows. Stock picks Bank of America says that the most important metric when considering the strength of the consumer is unemployment. “In general, as long as consumers have jobs, we expect they will make their monthly payments and not default on card loans (thereby impacting their credit scores),” Bank of America analysts wrote in July 27 note. The bank noted that, earlier this month, large pure-play card issuers such as American Express , Discover , Capital One and Synchrony reported second-quarter earnings that generally showed strong purchase volumes and better-than-forecast credit growth. As such, Bank of America is buy-rated on American Express, giving it a price target of $183 – an upside of around 19% from current prices. That’s based on an approximate multiple of 16 times to its 2023 earnings-per-share forecast, it said. It also has a “buy” recommendation on Capital One Financial, with a price target of $144, representing an upside of around 31%. Separately, Bernstein analysts assessed the impact of a possible U.S. recession on the consumer copies they cover. “U.S. consumer staples are typically viewed as ‘defensive’ safe havens, which benefit from a flight to safety during times of economic stress,” they wrote in a report this month. The bank said that Colgate and Coca-Cola have some of the best “defensive” category exposure. “In beverages, the data shows us that cola carbonates have held up remarkably well through previous recessions — good news for Coca-Cola,” Bernstein wrote. “We see that pet food and oral care have been among the best categories historically, benefiting Colgate.” Bernstein also identified the global brands which are “best positioned” if a recession sees consumers cut back on spending. It picked Swiss chocolatier Lindt and cosmetics firm L’Oreal , giving them an outperform rating. “These are brands with high growth, sustained volume growth, strong cross-price elasticities,” Bernstein analysts wrote. The firm gave L’Oreal a price target of 435 euros ($444), around 18% upside from current levels, and Lindt a 111,000 Swiss Franc ($116,268) price target, giving it upside of less than 2%.
