2 Stocks Offer Starkly Different Reactions to Consumer Confidence
Whirlpool is warning of 'recession‑level declines,' and its stock shows the damage. Texas Roadhouse tells a very different story.
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We never think about our appliances until something goes awry.
My trusty old Kenmore dryer began making odd grinding noises last week. I immediately wondered, should I call for repairs, or just price a new washer and dryer?
This week, an appliance manufacturer made a surprising announcement.
Caught in a Whirlpool
Whirlpool (WHR) , a Michigan-based appliance manufacturer founded in 1911, announced on Thursday that the war in Iran was causing an "recession-level industry decline." Whirlpool officials also blamed falling consumer confidence for the state of its business.
Revenues for its first quarter came in at $3.27 billion, well short of analysts’ consensus estimate of $3.44 billion. More alarming was Whirlpool’s decision to reduce full-year earnings guidance by nearly half, from $6 to a range between $3 and $3.50.
Whirlpool shares lost 12%, and closed at their lowest level since January 2012.
Oddly, Whirlpool’s chart does show some support near its current price. The last time Whirlpool fell into the high $40’s (black dotted line), the stock bounced over 350% in just over three years.
Taking this into consideration, a bounce from here wouldn’t come as a surprise.
No Blues at This Roadhouse
Whirlpool isn’t the only stock trading near support. Texas Roadhouse (TXRH) reached a support level from November earlier this week, near $156 (black dotted line). The last time the stock’s price reached that area, it bounced for a 24% gain in less than three months.
Texas Roadhouse shot 7% higher after Thursday's closing bell. The steakhouse chain reported solid first-quarter sales and earnings.
In recent weeks, I've tried several times to visit a Texas Roadhouse. Every time, the restaurants are hopelessly crowded.
Whirlpool’s "recession-level industry decline" is nowhere to be found at Texas Roadhouse. It’s almost as if the companies exist in two separate worlds.
That’s not to diminish Whirlpool’s claim that falling consumer confidence has affected its business. The correlation between that metric and Whirlpool’s stock is visible on the following charts.
Consumer Confidence
Consumer spending accounts for nearly 70% of the U.S. GDP. According to the University of Michigan, consumer confidence in April measured 49.8. It's the lowest reading ever recorded by the survey.
The following graph shows us that consumer confidence has been steadily declining for the past six years.
A weekly chart of Whirlpool shows that stock in a similar decline over the past five years. Over that time, Whirlpool shares have lost over 80% of their value.
Bottom Line
Whirlpool shares are closely tied to consumer confidence. Bargain hunting at these levels is unadvisable, as consumer confidence is in a long-term downtrend.
Shares of Texas Roadhouse, on the other hand, seem disengaged from consumer confidence readings. It’s one of the few restaurant chains worth considering at this time.
Related: Bitcoin Price Faces Bear Market Test at $74,000
At the time of publication, Ponsi was long TXRH.
