Stocks like Ralph Lauren and Dollar General have strong upside potential in today’s “K-shaped” economy, according to Wolf Research. In this scenario, the economy may expand, but there will be a large bifurcation between high- and low-end consumers and industry. As the gap between rich and poor widens, lower-income shoppers tend to buy less, while wealthier consumers can benefit from rising stock and home prices, increasing their purchasing power. Under these circumstances, companies that cater to high-end consumers may see growth, while lower-end companies will gravitate toward companies that offer more discounts and lower prices. Wolf Research has put together two baskets examining the potential beneficiaries of increased spending among upscale and lower-end consumers. Stocks in the high-end spending basket have greater exposure to wealthy customers, while stocks in the lower-end spending basket have greater exposure to lower-income consumers. Designer apparel and accessories company Ralph Lauren has soared more than 40% this year. The company’s stock hit a new high earlier this month after the company reported better-than-expected second-quarter results and raised its full-year outlook. RL YTD Mountain Ralph Lauren’s stock price performance over the past year. “Our iconic brands and timeless products continue to resonate with consumers around the world, across generations and cultures, and we are strengthening our comprehensive luxury lifestyle position with disciplined investments to drive sustainable long-term growth and value creation this year and beyond,” said Patrice Loubet, president and CEO of Ralph Lauren, in the company’s earnings call. Tapestry and home builder Toll Brothers were also on the list. Discount retailers Dollar General and Walmart were named to the low-cost spending list. The former is up more than 30% and has also been able to capture higher-end consumers. Dollar General reported second-quarter fiscal net sales of $10.7 billion, compared to $10.2 billion in the year-ago period. Earnings per share for the quarter also exceeded expectations. DG YTD Mountain Dollar General stock price performance over the past year. “Our improved execution, along with our progress in advancing important initiatives, are resonating with both existing and new customers as we further strengthen our value and convenience proposition,” Dollar General CEO Todd Vasos said in the company’s latest earnings report. Meanwhile, Walmart also raised its full-year profit outlook on Thursday as it continues to attract consumers at a variety of income levels.
