Citi: Here's How To Invest For The Huge Wave Of Low-End Consumers

Photo: AP

In a report out from Citi this week, more than 30 analysts compiled 20 picks they expect to outperform next year.Their investment strategy is built on the hour-glass theory, or the thought that companies playing to the upper and lower classes will post impressive sales growth as the middle class shrinks.

Yesterday, we showed you the 15 stocks at the luxury end of the list.

Today we present the 20 stocks targeting the low end consumer.


Ticker - NYSE:AZO

Target Price - $377

Industry - Retailing / Hardlines

Citi believes AutoZone is gaining share in the do-it-yourself market, which will bolster margins. Further aiding the retailer is the increasing age of the American auto fleet. As consumers put off car purchases, and continue to hold onto vehicles longer, preventive maintenance has become more of a priority.

Source: Citi


Ticker - EBR:COLR

Target Price - €40.00

Industry - Food Retail

Colruyt is one of the three leading food retailers in Belgium holding 25% market share. The company offers a value proposition that is difficult to beat and it has been gaining +100 basis points of market share a year. Citi expects that to continue.

Source: Citi


Ticker - BAK:CPALL

Target Price - Bt49.00

Industry - Retailing / Broadlines

CP ALL expects to have more than 7,000 7-11 outlets in Thailand by 2013, adding more than 500 stores a year. CP ALL has been able to shift nearly 20% of sales to private label products, boosting margins at the retailer.

Source: Citi

Dollar General

Ticker - NYSE:DG

Target Price - $49.00

Industry - Retailing / Broadlines

Dollar General is poised for growth as more middle class consumers trade down as unemployment persists. This year, more than 22% of shoppers came from households earning $70,000 or more a year. The company makes Citi's list for its private label products, rich product assortment, and strong management team.

Source: Citi

Family Dollar

Ticker - NYSE:FDO

Target Price - $70.00

Industry - Retailing / Broadlines

The company has embarked on an ambitious renovation program that will hit all stores by 2015. Better assortments and new interiors will boost customer adoption, Citi believes. Beyond current locations, Family Dollar plans to grow footprint by 5-7% each year.

Source: Citi


Ticker - NYSE:HBI

Target Price - $39.00

Industry - Apparel Manufacturing

Hanes has seen strong growth from its lower priced lines sold at dollar stores and mass merchants, which now contribute 50% of total sales. The company gained 7% of shelf space in 2010, and Citi thinks it could take another 2% in 2011 -- putting the label front end centre in store aisles.

Source: Citi


Ticker - MCE:ITX

Target Price - €75.00

Industry - Retailing / Broadlines

Inditex, owner of Zara, continues to keep average ticket prices at €20, well below fashion peers who are experimenting with higher prices this holiday. Citi believes the Spanish company's small market share outside of Spain and Portugal leave it with significant headroom for growth.

Source: Citi

Kraft Foods

Ticker - NYSE:KFT

Target Price - $42.00

Industry - Food Manufacturing

As consumers cut out-to-eat spending and cook more meals at home, Kraft stands to benefit. Over the past 12 weeks, Kraft has seen retail strength out of dry dinner, lunch meat and cookies.

Source: Citi


Ticker - LON:MGNT

Target Price - $25.50

Industry - Food Retail

Magnit is the largest food retailer in Russia by sales space. The company relies heavily upon convenience store formats, which have proved resilient during Russian downturns. Citi sees the recent devaluation of the ruble as a further catalyst to support Magnit.

Source: Citi

Mr. Price Group

Ticker - JNB:MPC

Target Price - R79.00

Industry - Retailing / Apparel

Mr. Price Group is a major teen apparel chain in South Africa. The country has faced serious concerns recently as the rand weakens, but not Mr. Price. The company's suppliers are almost all located within South Africa, eliminating currency volatility. Citi also believes that as South Africans trade down, the company will be better situated than peers that rely on credit for sales.

Source: Citi


Target Price - $700.00

Industry - Online Travel

The company's Name-Your-Own-Price strategy has made it popular among consumers looking for a deal. Priceline's operating structure has also allowed it to keep costs lower than peers, helping it to expand its hotel network to more than 155,000 locations.

Source: Citi

Ross Stores


Target Price - $78.00

Industry - Retailing / Softlines

The average Ross Stores consumer comes from a household that earns about $50,000 a year, putting it near the bottom of retailers. Ross Stores have also differentiated themselves from TJX's TJ Maxx and Marshall's, helping it drive traffic. The company's recent bump to guidance will help too.

Source: Citi

Shoprite Holdings

Ticker - JNB:SHP

Target Price - R$130.00

Industry - Food Retail

As commodity prices begin to impact consumers in Africa, Shoprite stands to benefit as it is one of the perceived value propositions in the country. Citi believes low-income South Africans will have to spend more of their income on food products.

Source: Citi

Steven Madden Ltd.

Ticker - NYSE:SHOO

Target Price - $41.00

Industry - Apparel / Footwear Manufactures

Steve Madden sells footwear at prices 50-70% less than premium peers, while getting styles to market right after they appear on runways. Citi expects the company's earnings to grow at a 20% rate on the back of supply chain management and value driven price points.

Source: Citi

Sun Art Retail

Ticker - HKG:6808

Target Price - HK$10.40

Industry - Retailing / Broadlines

Sun Art is the largest operator of Chinese hypermarkets, or super stores combined with grocers. Citi expects the company to add 40 to 60 stores per year through 2013, up from just 184 locations today. Sun Art is one of the most competitive stores on price point in China, and that value will drive sales if there's any landing, soft or hard.

Source: Citi

Super Retail Group

Ticker - ASX:SUL

Target Price - AU$6.50

Industry - Retailing / Hardlines

Australian Super Retail operates retailer under five brands and has seen tremendous success from its Supercheap Auto, the largest aftermarket auto chain. The company will benefit over the coming year from its low average price point of A$30 and its growing use of private label.

Source: Citi

Toyo Suisan

Ticker - TYO:2875

Target Price - ¥2,600.00

Industry - Packaged Foods / Producers

Japanese Toyo Suisan holds 65% of the instant noodle (ramen) market in America, meaning the more customers cut back to save, the more Toyo has to gain. The company has been able to price in higher commodity prices while growing volumes, a trend Citi analysts like.

Source: Citi

Universal Robina

Ticker - PSE:URC

Target Price - P50.00

Industry - Food Manufacturers

Citi likes Universal Robina's extensive product mix that lets it cater to both the middle and lower income markets in the Philippines. A shift, analysts believe, would move consumers from one Universal Robina product to another, as it is extremely competitive on cost.

Source: Citi

Vera Bradley


Target Price - $51.00

Industry - Apparel / Footwear Manufactures

Vera Bradley has succeeded this year on strong product assortment and premium store experience, while maintaining a $30-$50 price point. Citi believes that the company offers a strong competitor to more expensive European brands, which will help it if customers want to trade down.

Source: Citi


Ticker - LON:WTB

Target Price - £22.00

Industry - Hotels

Whitbread is the owner of British economy hotel chain, Premier Inn, and moderately expensive coffee shop, Costa Coffee. Whitbread is adding close to 4,000 rooms per year, which will help it gain market share if business travellers are forced to trade down as they did during the 2008 recession.

Source: Citi

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