NFLX: The Netflix Index

Nuevo-indices, like Estee Lauder’s (NYSE: EL) “lipstick index,” the bartender index or the video game index, all have their day in the sun during market downturns. Often they’re dismissed as distractions, or excuses for poor performance.

But their fundamentals are based on real consumer trends and psychology.

Areas like entertainment, clothing and luxury items are often cut back during downturns. But that doesn’t mean they aren’t replaced with substitutes. Frugal doesn’t mean spendthrift. Consumers are still buying.

Purchases are justified by their reduced cost, or the “savings” from not spending money elsewhere. Entertainment like Netflix (Nasdaq: NFLX) carries a cost – but nothing like going to a movie three times a week. It’s this mentality that we can find profits in.

Many companies have benefited from cost-conscious shoppers and savers, and others are benefiting from negative psychology.

Kraft Foods (NYSE: KFT) and General Mills (NYSE: GIS), for example, are profiting from demand for comfort foods and a falling cost of goods.

In fact, discount retailers like Wal-Mart (NYSE: WMT) and Dollar Tree (Nasdaq: DLTR) have actually increased their sales projections.

When the market turns trading and investing rules upside-down, like it has over the past nine months, it’s nice to know that some habits can be counted on. And who knows? Tomorrow you could be hearing about the “Netflix Index” as the newest economic gauge.

Companies mentioned in this article: EL, NFLX, KFT, GIS, WMT and DLTR.

View original at: Investment Advice and Investment Research with a Contrarian Point of View

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