BofA Merrill Lynch Global Research Says Long-on-Women Is a Compelling Investment Theme

More women with more money are doing more shopping and that has created a “long-on-women” investment opportunity, according to Bank of America Merrill Lynch Global Research.

In continuing to focus on the “long-on-women” investment theme that explores the growing importance of female consumers, David Bianco, head of U.S. equity strategy research, said that demographic and economic trends are increasing discretionary income for women, which should benefit companies that sell specifically to women.

“Women may increasingly become the higher-income earners of U.S. households, and since they make the bulk of household spending decisions as it is, we think their stronger purchasing power relative to men bodes well for spending on a wide range of categories from vacations to cosmetic procedures to home furnishings,” said Bianco.

Bianco’s investment recommendations cover a broad cross-section of companies that will benefit from this “long-on-women” theme, such as:

* Apparel companies and other retailers targeting the high-end female consumer.
* Makers of cosmetics and beauty products.
* Containers and packaging companies serving fragrance/cosmetic markets.
* Specialty pharmaceutical companies that make facial and breast aesthetics.
* Consumer finance companies offering travel features/rewards and other discretionary spending items.

BofA Merrill Lynch Global Research’s “long-on-women” thesis is based on findings from its U.S. Economics and Specialty Retail groups, which had recently identified several important economic and demographic trends underpinning the investment theme:

* A large gap exists between male and female unemployment rates. Roughly half of the employment decline in 2008-09 was due to job losses in the male-oriented sectors of manufacturing and construction, which now account for less than 10 percent of private sector job openings.
* Women are best positioned to fill the jobs that will see the largest job growth over the next eight years, such as nurses and home health aids.
* Women are earning more bachelor’s degrees than men; and, while the wage gap remains, it’s getting smaller.
* In the next 10 years, women between the ages 30 and 39 are expected to be among the fastest growing demographic groups in the U.S., and consumers in that group are near their peak earning and spending years.

“Women already control a majority of the household’s spending on apparel and accessories, but we expect the working woman to spend more on herself in the coming years,” said Lorraine Hutchinson, a U.S. specialty retail analyst for BofA Merrill Lynch Global Research. “We’re already noticing a rebound of the female shopper in many companies and expect this trend to continue.”

With spending on luxury items growing again, the balance sheets of upper-income Americans on the mend and the unemployment rate for women almost two full percentage points below men, Hutchinson identifies several demographic and business trends that will impact specialty retailers:

* Well-established clothing brands should benefit from serving a growing population of women aged 30-39 as unemployment boosts demand for professional attire and Gen X shoppers begin to outspend the baby boomers on a per-household basis.
* Teen retailers should face headwinds as the teen population (ages 15-19) is expected to shrink at a compounded annual growth rate of 0.94 percent from 2009 to 2014 – in stark contrast to growth rates of 1.02 percent from 2003 to 2008. Further out, this age group should increase at a rate of 1.22 percent from 2015 to 2020.
* Children’s apparel retailers may see slower growth as the population growth rate for children ages 9 and under levels off, but the slowdown should be offset by aging baby boomers who will want to spend on their grandchildren, increasing the per-household spend-per-child.
* High-end luxury retailers should provide the purest exposure to the improving wealth and employment picture for upper-income consumers, particularly women.

Companies identified in the “long-on-women” research theme include specialty retailers such as Ann Taylor, Express Inc., Coach Inc., Tiffany & Co., Urban Outfitters Inc., and Gap Inc., and health care companies such as Medicis Pharmaceutical and Allergan, which makes Botox and provides breast implants. Also identified were Aptar Group Inc., a packaging company with dispensing systems for fragrance and cosmetics, Liberty Media Holding (which owns QVC home shopping network), Walt Disney (whose theme parks and consumer products are popular with women), the wine maker Constellation Brands and American Express (women-focus is part of their growth strategy with reward and travel features designed to appeal to high-end female consumers).

The goal of BofA Merrill Lynch Global Research is to be the premier global research franchise, providing clients with exceptional service, value-added investment insights and alpha-generating investment recommendations. Its global team of analysts provides investment recommendations on more than 3,200 stocks and 880 credits, while its economists and strategists provide market forecasts for nearly 60 countries and recommendations on 40 currencies.

The group was named 2010 Top Global Broker (second consecutive year), Top Europe Broker, No. 2 U.S. Broker, and No. 3 Asia broker by Financial Times/StarMine. The team was also named Best Brokerage by Forbes/Zacks for the second consecutive year and the 2010 winner of theEmerging Markets magazine’s EM Research Global Award. In addition, the group was named No. 1 in the 2010 Institutional Investor All-Emerging Europe and All-Latin America Research team surveys, No. 3 in the 2010 Institutional Investor All-America Equity, All-America Fixed Income surveys, and, most recently No. 3 in the 2011 All-Europe Research Team survey.

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SOURCE: Bank of America Merrill Lynch

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