Morgan Stanley: Consumers Choosing Restaurants, iPhones Over Apparel

Kimberly Greenberger, retail analyst at Morgan Stanley, published a report Tuesday on the state of the consumer and where they are spending their money.

According to Greenberger, consumers have clearly signaled thus far in October a preference for electronics and dining out instead of apparel. The analyst notes that the release of Apple Inc.'s AAPL iPhone 6 and rising demand for 4k television sets is benefiting electronic sales. In addition, consumers are dining out more, a reversal of the trends set in 2013. Meanwhile, apparel sales look weak, especially men's clothing, according to Greenberger.

While not mentioned in Greenberger's report, Chipotle Mexican Grill, Inc.'s CMG 19.8 percent comparable-restaurant sales growth, coupled with troubled outlooks from retailers like Urban Outfitters, Inc. URBN may validate the analysts findings of a troubled apparel segment.

In fact, branded apparel and footwear sales growth of 2.7 percent lagged the overall U.S. retail retail sales growth rate of 4.3 percent, according to Greenberger. As such, the analyst is now "incrementally" less bullish on Apparel and Footwear names.

Retail stocks are down nearly 6 percent over the last month despite an unchanged economic and survey data concerning U.S. consumer spending. As such, retail stocks have "contracted, but the fundamental outlook remains uneven" providing investors with potential upside in some names.

Greenberger's top "Best Ideas" include Michael Kors Holding Ltd KORS and Macy's, Inc. M while retailers like J C Penney Company Inc JCP and Kohl's Corporation KSS remain Underweight/Sell.