I’ve been in depressed funks before. But none apparently as severe as the American consumer.
In case you missed it, the latest University of Michigan’s Consumer Sentiment Index hit a record low. And right on cue, the fear-mongers are tripping over themselves to scare you out of stocks.
Every headline reads like a eulogy for the American shopper.
What’s The Big Skinny? I just sat down with Tom Hayes of Great Hill Capital Management, whose hedge fund returned 129% over the last three years (net of fees). And he didn’t mince words: “The death of the consumer has been greatly exaggerated. And he’s backing up his beliefs with capital – in three names most pundits won’t touch. Pizza. Autos. Vans. Yes, really. [Watch our full conversation here.]
.1 Headline.
Watch what people do, not what they say.
That’s Tom’s 20-year mantra and the single most valuable rule in the consumer-stock playbook.
Why? Because sentiment isn’t predictive. Not in the way most expect, at least.
You see, sour sentiment doesn’t lead to less spending. Instead, it leads to great buying opportunities.
Consider the facts…
The University of Michigan Consumer Sentiment Index has only been this washed out a handful of times in the survey’s 70-year history. And every single one was a generational buy.
June 2022. Sentiment cratered to 50.0, an all-time low. Then the Consumer Discretionary Select Sector $XLY ( ▼ 1.5% ) ripped roughly 22% over the next 12 months.
November 2008. During the Great Financial Crisis, sentiment bottomed at 55.3. And XLY went on to rally 65% over the next 12 months, leading the entire market off the floor.
As Tom told me, “If you made a bet on the consumer during those periods, you were rewarded excessively handsomely.”
The set-up is the same right now. Consumers are saying one thing and swiping their cards saying another.
Exhibit A: Bank of America’s latest data shows total credit and debit card spending increased 4.3% year-over-year in March, even as headline sentiment was hitting fresh lows.
Exhibit B: Q1 2026 retail sales have beaten consensus three months running, per Census Bureau data.
Exhibit C: Tom’s anecdotal, but accurate observation. During our talk, he said, “Try getting a Saturday-night dinner reservation in any major city without booking 48 hours ahead. You can’t.”
The even better news? The consumer discretionary sector is trading at a historic discount…
.1 Chart.
The chart Tom walked me through is the kind that makes contrarians salivate.
Consumer discretionary as a sector is trading at the cheapest relative valuation to the S&P 500 since the COVID lows of 2022.
Before that? You have to go all the way back to the smoldering wreckage of the 2009 financial crisis to get a lower relative valuation.
We’re talking about multi-standard-deviation events here. The kind that show up maybe twice a decade. And when they do, the payoff for stepping in – even imperfectly – is enormous.
Or as Tom shared, “You’re never going to nail the exact bottom. But if you’re generally in the vicinity, you’re going to do very well.”
.1 Investment Insight.
Three Contrarian Buys for the Next Three Years
Here’s where Tom’s playbook gets real. Three deeply hated names, all set up for double-or-better returns over a three-year horizon.
Papa John’s $PZZA ( ▲ 0.42% ): This one shocked me, as no self-respecting Italian would eat this pizza. But Tom makes a compelling case here. For the stock, at least. As for the pizza, he says I need to try the new pan pizza. They’re submitting it for a Michelin star (that’s not a typo!).
VF Corp $VFC ( ▼ 1.51% ): Another “Turnaround Tom” special. CEO Bracken Darrell is running the exact playbook he ran at Logitech, where he turned a $1 million investment into $26 million. That’s a 26-bagger for selling commoditized mice and webcams. Tom shared the early signs of a similar success story materializing at VFC during our talk.
A boring auto-parts supplier that Tom thinks could possibly 5x from current prices as the auto sector recovers, as it always does.
The Big Skinny: Consumer sentiment at a generational low is the loudest buy signal you’ll ever hear. Don’t bet against the American consumer when they have a job. Buy the contrarian basket Tom is buying – pizza, autos, vans – before the crowd finally catches up to what the data has been screaming all along.
.Before You Run….
Full episode: Watch my full conversation with Tom Hayes here.
Follow Tom’s research at HedgeFundTips.com and his insights on Twitter.
Could This Drug HALT Parkinson's Disease? Watch my latest interview with $GANX ( ▼ 1.15% ) CEO Gene Mack here.
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