Motivated by recent works documenting that the returns formed on real investment predict aggregate economic activities, we study whether the ultimate consumption model proposed by Parker and Julliard (2005) explains the cross-section of investment-based stock returns. We find that the ultimate consumption model with horizons from 3 to 4 years outperforms the contemporaneous consumption model. The linearized model's performance is better than that of the Fama-French three-factor model and comparable to that of the Chen-Roll-Ross model. The explanatory power of the ultimate consumption model arises from the close business-cycle relationship between the ultimate consumption growth and the investment-based returns. (C) 2017 Elsevier Inc. All rights reserved.