Picking the best consumer discretionary stocks demands investors keep a keen eye on where and how consumers choose to spend their income. Companies in this sector hinge on a strong consumer ready to spend on non-essential or “discretionary” items.
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Much like technology, consumer discretionary stocks often lead the charge in a bull market. Yet, they’re equally quick to bear the brunt during economic downturns, leading to significant market volatility.
Some of Wall Street’s biggest success stories have emerged from this sector, with names like Monster Beverage Corp. (ticker: MNST), Tesla Inc. (TSLA) and Amazon.com Inc. (AMZN) standing out as top performers.
Here are six consumer discretionary stocks and ETFs that offer a mix between blue-chip stalwarts and smaller firms poised for accelerated growth:
| Stocks and ETFs | Year-to-date performance (as of Sept. 28) |
| Crocs Inc. (CROX) | -20.8% |
| SharkNinja Inc. (SN) | 6.2% |
| Amazon.com Inc. (AMZN) | 50% |
| Nike Inc. (NKE) | -22.7% |
| Lululemon Athletica Inc. (LULU) | 18.3% |
| SPDR Select Sector Fund Consumer Discretionary ETF (XLY) | 24.8% |
Crocs Inc. (CROX)
Crocs is known for its distinctive rubber clogs that are both ridiculed and celebrated. Some might call them ugly, but there’s no disputing their popularity, especially among Generation Z, where they rank as a top-five footwear brand, per Piper Sandler.
Over the past five years, CROX has boasted an impressive 34% compound annual growth rate in revenue and emerged as a pandemic beneficiary. As the post-COVID hype dies down, CROX is projecting a more modest 11% to 14% sales growth next year.
Last year’s acquisition of the rapidly rising casual footwear brand Heydude, was an important one for CROX, allowing the company to diversify its product line from its clogs, which many worry are subject to fads. Using its marketing and distribution channels, CROX aims to boost Heydude’s sales to a whopping $5 billion by 2026, from just $581 million in 2021.
The market hasn’t fully embraced this decision, with Heydude’s $2.5 billion price tag causing some unease among investors.
As a result, CROX trades at a mere eight times earnings, significantly below its five-year average price-to-earnings ratio of 15. Though the Heydude acquisition raised eyebrows, the current valuation suggests that CROX is a bargain given its customer loyalty and growth.
SharkNinja Inc. (SN)
SharkNinja is an under-the-radar stock. A spin-off from Hong Kong’s JS Global Lifestyle, the stock had a quiet stock market debut, bypassing the typical pre-IPO fanfare like roadshows and media attention. It’s a dominant player in the consumer appliances industry, holding a significant market share in products — such as vacuum cleaners, hair dryers and blenders — sold under the Shark and Ninja brands.
While Wall Street may have been slow to recognize its value, retailers and consumers certainly haven’t. Products like Ninja’s blenders have become household names and featured prominently at retail giants like Costco Wholesale Corp. (COST).
In today’s competitive e-commerce market where knockoffs abound, SN has managed to differentiate itself by heavily investing in research and development. This commitment ensures its products remain superior to potential imitations. The strategy has paid off with 26% annual sales growth since 2018, overshadowing its slow-growth competitors like Helen of Troy Ltd. (HELE).
Wall Street recently started turning its gaze to SN, which trades at just 15 times expected 2023 earnings.
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Amazon.com Inc. (AMZN)
Amazon needs little introduction, having revolutionized e-commerce alongside its massive cloud and streaming businesses. With a staggering 700% return over the decade, it’s been a consistent stock market leader.
However, with its current P/E ratio hovering around 100 and a $1.3 trillion market cap, some analysts are pondering whether the stock’s best days are behind it.
Amazon’s $2.7 billion loss in 2022 is especially worrisome to some investors but needs to be put in perspective. A sizable chunk of that loss stems from its investment in Rivian Automotive Inc. (RIVN), which saw a notable decline. Costs, like heightened wages and content production, are expected to level out in the near future.
And while the narrative of Amazon benefiting from the shift from brick-and-mortar to e-commerce seems oversaturated, this trend is far from over. A mere 20% of retail sales are projected to be online in 2023, according to Forbes, while e-commerce sales are expected to grow by 10%.
Additionally, Amazon’s increased focus on selling first-party products through its brands like Amazon Basics is a recipe for margin expansion.
While the stock is already up 50% this year, shares declined in late September on news of a Federal Trade Commission antitrust lawsuit, giving investors an entry point to buy the stock on a pullback.
Nike Inc. (NKE)
Nike is a global powerhouse in footwear and apparel, with millions of cult customers. While viewed as a bastion of steady growth and consistent dividends historically, the stock has come under fire in 2023, declining 22% this year, positioning it as one of the S&P 500’s weakest performers.
The market has questions about Nike’s growth, especially its direct-to-consumer (DTC) approach. After halting Nike sales at Macy’s Inc. (M) and other “undifferentiated” retailers in late 2021, the company recently crawled back to the retailer, indicating the strategy’s mixed results.
However, DTC accounts for 26% of Nike’s sales today, compared to 10% in 2019. While Nike may have overcorrected initially and harmed its wholesale business in the process, it continues to make strides in DTC sales which are much higher margin than its wholesale segment.
Despite short-term woes, Nike remains a juggernaut in footwear and apparel. The stock has traded at an average P/E ratio of 44 over the last five years while trading at a discounted P/E of 28 today. The ride might be bumpy, but buying blue-chip stocks like Nike at a discount has been the right move historically. That discount might not last too long, either. Nike stock jumped as much as 7% on Sept. 29 following an impressive earnings beat.
Lululemon Athletica Inc. (LULU)
Lululemon, the luxury athletic apparel behemoth, has become synonymous with premium-priced athleisure items like leggings, skirts and bags, primarily targeting women.
Even though it debuted on the stock market in 2007, LULU’s growth mirrors that of a younger company, with a striking 32% annual revenue increase over the past three years. A surge in its appeal among Generation Z is a driving factor.
LULU stands alone when it comes to its intense pricing power, with its ability to maintain premium prices even while scaling to a massive $8.1 billion in 2022 sales. For instance, LULU’s flagship Align Leggings command a starting price of $98, with several price hikes along the way. In contrast, you can buy Target’s Wild Fable leggings for just $8.
Trading at a 48 P/E ratio, LULU’s stock, too, commands a premium price for its elite branding and strong growth. But high-quality stocks seldom come cheap, and LULU is no exception.
SPDR Select Sector Fund Consumer Discretionary ETF (XLY)
Choosing the right stock can be lucrative, but missteps can significantly hinder your portfolio’s performance. For those looking for broader exposure to large-cap consumer stocks, an ETF such as the Consumer Discretionary Select Sector SPDR Fund might be a better choice than venturing into the challenging practice of individual stock selection.
Stock picking isn’t for the faint of heart, so elite stock pickers command astronomical salaries. Investing in an ETF like XLY offers a safety net, allowing investors to benefit from the general uptrend of consumer stocks without the idiosyncratic risks that come with concentrating in single names.
XLY, a highly liquid ETF, holds a diversified portfolio of consumer discretionary stocks from the S&P 500. Most notably, heavyweights Amazon, Tesla and Home Depot Inc. (HD) account for 48% of the portfolio. Other recognizable stocks, such as Starbucks Corp. (SBUX), McDonalds Corp. (MCD) and Nike, also find a place in this fund.
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6 Best Consumer Discretionary Stocks and ETFs to Buy originally appeared on usnews.com
Update 09/29/23: This story was previously published at an earlier date and has been updated with new information.
