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Consumer Cyclical: China Growth Concerns Present Buying Opportunities

The market is now pricing in long-term cash flow assumptions that are more conservative than those baked into our longer-term consumer cyclical valuation assumptions.

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  • Our consumer cyclical universe trades at a median price/fair value ratio of 0.89, remaining modestly undervalued over the past several months.
  • Although we still see China as a key driver of investor concern, especially in the luxury goods space, where Chinese consumers represent 30% of global purchases, we believe these names, along with others, are well positioned, given the strength of their powerful brand intangible assets.
  • The apparel sector has been challenged, and we still see headwinds into 2016. We think that warm weather, poor inventory management, a lack of new fashion trends, and shifts to other distribution channels and product lines have contributed to the weakness.
  • The recent pullback in equity markets across the globe has opened up buying opportunities across Morningstar's global e-commerce coverage.

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Dan Wasiolek does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.