The U.S. consumer: Is gloom priced in?

Gas station owner Osama Elkhawad holds on to the money given to him by a customer to prepay for fuel at his station in Arlington, Virginia, June 11, 2008.

NEW YORK (Reuters) - Declining home prices, the credit crisis, rising gasoline and food prices, and a weakening economy are putting huge pressure on U.S. consumers. Is all the gloom already priced into consumer discretionary stocks, or is there worse to come? Here are the bull and bear cases.

IT'S ALREADY IN THE PRICE

"We think the gloom is already in the stocks, that they've been beat down too far. We are more optimistic than negative," said Gary Bradshaw, portfolio manager at Dallas-based Hodges Capital Management, who expects the market to rebound before year-end.

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"When everything is falling apart, it's the best time to buy," said Sarah Henry, retail analyst with MFC Global Investment Management.

"Once we've reached the point where the Fed is at the end of its easing cycle, historically this has been the time to buy in," Henry said.

"Where retail values are already attractive at lows relative to history, this has traditionally been a signal -- all these levels we're at with consumer confidence in the 50s, this has been a 'buy' signal."

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"If you look at some of the restaurant stocks, they've actually begun to show something of a rebound," said Scott Rothbort, president and founder of LakeView Asset Management in Millburn, New Jersey, adding that the consumer "doom and gloom" was exacerbated by the media and was largely priced in.

"I'm actually beginning to accumulate more restaurant stocks," he said.

IT'S GOT FURTHER TO DROP

"You're more in to the art than the science now of trying to figure out when everything is fully discounted," said Matthew Kaufler, portfolio manager of the Touchstone Value Opportunities Fund.

"Is everything fully discounted and we're at any semblance of a bottom? My fear is that the American Express (AXP.N) news is very much a precursor toward answering that question 'no'."

Kaufler was referring to the credit card company's steeper-than-expected drop in quarterly profit, as even its best customers spend less and take longer to pay bills.

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"This reminds me a lot of (2000, 2001) again, where consumers are spending a lot more time looking at price, and basically going to the store and getting what they need, as opposed to tacking on things they weren't planning to get," said Morningstar analyst Gregg Warren, who said the commodity cost and retail pricing environment was still too uncertain to make buying food stocks safe.

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"I would say consumer electronics probably (has) got some downward room left only because the business itself is becoming commoditized, so there is more competition with discounters at this stage in the TV cycle and big-ticket items related to home, which is not the best space to be in," said Stacey Wildlitz, an analyst with Pali Research.

STOCK PICKS

GARY BRADSHAW: Harley Davidson Inc (HOG.N), Coca-Cola Co (KO.N), PepsiCo Inc (PEP.N) and Procter & Gamble Co (PG.N).

SARAH HENRY: Target Corp (TGT.N), Wal-Mart Stores Inc (WMT.N), Nordstrom Inc (JWN.N) and Nike Inc (NKE.N).

SCOTT ROTHBORT: Yum Brands Inc (YUM.N), McDonald's Corp

(MCD.N)

STOCK HOLDS/AVOIDS

GREGG WARREN recommends investors hold stocks like General Mills Inc (GIS.N) and HJ Heinz Co (HNZ.N), but not buy them.

STACEY WILDLITZ has a "neutral" rating on Best Buy Co Inc (BBY.N) and Circuit City Stores Inc CC.N.

SCOTT ROTHBERT said he "wouldn't touch Starbucks Corp (SBUX.O)" because consumers are trading out of premium brands.

SHORT SELLS

Doug Kass, who famously shorted "everything related to housing" in 2007, said he is still betting on severe selling pressure in upscale jeweler Tiffany & Co (TIF.N), home-goods retailer William-Sonoma Inc (WSM.N), fashion apparel company Polo Ralph Lauren Corp (RL.N) and mid-priced jeweler Zale Corp (ZLC.N). Kass is founder and president of Seabreeze Partners Management.

(Additional reporting by Nicole Maestri, Jennifer Ablan and Aarthi Sivaraman in New York, Brad Dorfman and Erin Zureick in Chicago, Karen Jacobs in Atlanta, Alexandria Sage in San Francisco and Lisa Baertlein in Los Angeles)