The Australian economy is beginning to see decent growth, as shown in the improvement in GDP, consumer spending and retail trade. It isn't perfect, but it's better to be trending up than down.
Just when there were forecasts of the Aussie dollar going back down to the $0.80 or even $0.65 level versus the US$, the currency pops up to $0.92. This involves China and whether another stimulus package to fire up its domestic market will occur.
While politicians, economists and the news reporters try to figure out how it will impact the Australian economy, investors need to stay busy. Like Warren Buffett, the chairman and CEO of Berkshire Hathaway Inc (NYSE: BRK.A, BRK.B) once said, "I'd rather be approximately right than precisely wrong." If we wait for a full answer, opportunities may be missed.
One group of stocks to look at is consumer services. For a number of years when the economy was shaky, people were mostly saving and paying down debt.
Now, they may feel more comfortable in shopping and spending, so I would look to companies like Flight Centre Travel Group Ltd (ASX: FLT) and Domino's Pizza Enterprises Ltd (ASX: DMP) to have more business. Splurging on an extra day of vacation, or even an extra pizza is easier now.
Consumers also know it's a good time to invest. With extra money, you need a good place to sock it away for the future. Banks are already pretty expensive, so diversified financials could be a good choice.
Companies like Platinum Asset Management Limited (ASX: PTM) and Perpetual Limited (ASX: PPT) put money to work in their investment funds, so more funds under management may raise earnings.
Lastly, the insurance industry looks like it may have some opportunities. Over the past several years, insurance companies were belted with big natural disasters that produced a lot of claims. Actually, that sometimes signals a subsequent growth period because the companies raise insurance premiums to cover further potential risks.
Heavy natural disasters don't happen every year, so in the lighter years, the higher premiums offset lower costs and earnings rise. I would look towards Insurance Australia Group Limited (ASX: IAG) and Suncorp Group Ltd (ASX: SUN) for improving earnings and better margins as they cut costs.
Foolish takeaway
Following the money movements in an economy is the strategy. As money flows increase, you want to be where it is flowing to.
