I look for increases in consumer spending to understand how far into the next economic cycle we are. Housing is picking up after several years of subdued activity, the GFC is for the most part a historical chapter in market boom and bust, and although issues like job security and rising unemployment show we're not out of the woods yet, company earnings and the stock market in general are up.
These two companies are good examples of the growth in housing and the gaming markets, and you should have them on your watchlists if not in your portfolio.
Mirvac Group (ASX: MGR), the real estate developer and investment company, has shown the growth in the housing market of late with its record $1.5 billion in pre-sales contracts exchanged for the half-year ending December. It released 1,097 lots during the period, and 87.5% of them were pre-sold. The long term 10-year historical average for full-year lot pre-sales is about $900 million, so this half-year figure is far above the trend.
The majority of its residential development is in NSW, where it anticipates the housing market will continue upward for this year and into the mid-term. In second is Victoria where although FY2014 may not show great change, its forecast is for mid-term growth. QLD looks promising as the property market is beginning to show signs of general increased activity and interest from inter-state investors.
It is looking for its apartment releases to be about 1,800 lots over the next 18 months.
In H1 2014, net profit for member equity holders rose from $55.2 million to $246 million, and full-year EPS guidance is expected between 8%-10% to 11.8-12 cents per stapled security.
Aristocrat Leisure Limited (ASX: ALL) has maintained its leading 55% market share of new gaming machines in the Asia Pacific region and its largest geographical segment the US, saw a 9.3% rise in earnings to US$139.2 million.
These were some of the highlights of the FY2013 results released late last year, but the company also showed two acquisitions that indicate it intends to deepen its involvement in online gaming, seeing that as a growing market to expand into. It bought a social gaming business called Product Madness that allows players to play free casino-like games. It also took control of another called nLive.
Online gambling in the US is still rather restricted, yet by positioning itself in the space, it could react to any legislative changes quickly should the situation change. Currently it can monetise existing player usage through advertising, and venues can offer it for promotional purposes.
The company achieved a 16.2% rise in EPS to 19.4 cents per share for full year 2013, and the share price is currently $4.95 for a PE of 25.5.
Foolish takeaway
Both of these companies are in industries that are related to consumer discretionary spending. Property markets pick-up when interest rates are low and people feel they can afford to buy. Likewise gaming and gambling increase when consumers are earning more, and allow for more entertainment in their budgets.
