Stocks in the consumer discretionary sector of the economy represent companies that produce non-essential products and services for use by the individual consumer. They differ from consumer staples stocks, which sell essential items like food and household products, and from industrial stocks which provide goods and services to businesses and industry. Things like designer clothes, cars, computers and electronic devices, travel services and entertainment companies are all examples of consumer discretionary companies.
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By their nature consumer discretionary products are very sensitive to the economy. When consumer confidence is high and unemployment is low, people have more discretionary income to spend on non-essential items. On the other hand, when the economy is struggling, consumers tend to cut back on such items and focus on necessities.
Despite having some concerns about the strength and resilience of the economy, the U.S. consumer is in pretty good shape. The unemployment rate stands at just 4.1% as of September 2024, and the economy added 254,000 new jobs that month as well. Meanwhile, inflation has declined to 2.4% — a level not seen since February 2021. On top of that good news, interest rates on things like credit cards, personal loans and mortgages are slowly easing.
The result is brisk consumer spending and an optimistic outlook for consumer discretionary stocks. If things continue to improve and the U.S. economy manages to avoid a recession or economic hard landing, right now might be a good time to buy one or more of the stocks or exchange-traded funds, or ETFs, on this list.
Here are eight of the best consumer discretionary stocks and ETFs to buy today:
— Amazon.com Inc. (ticker: AMZN)
— Lowe’s Cos. Inc. (LOW)
— Ford Motor Co. (F)
— Tesla Inc. (TSLA)
— Netflix Inc. (NFLX)
— Target Corp. (TGT)
— Marriott International Inc. (MAR)
— Vanguard Consumer Discretionary Index Fund ETF Shares (VCR)
Amazon.com Inc. (AMZN)
Boasting an incredible market cap of around $2 trillion, AMZN is the largest stock in the consumer discretionary sector and, of course, one of the largest and best-known companies in the world.
Based in Seattle, Amazon offers consumers all manner of digital and physical products on its famous website and through its small network of brick-and-mortar retail outlets in America and in every developed country in the world.
AMZN sources and sells retail products for its own account, but it also facilitates the e-commerce activities of many outside businesses, both large and small. The company also offers a large selection of branded electronic devices like the eero Wi-Fi system, Alexa smart speakers, Ring video doorbell systems, the Amazon Kindle e-reader and more.
In addition to retail, Amazon Web Services, known simply as AWS, is a power player in cloud computing infrastructure. By some estimates, AWS has a 35% global market share in that important and fast-growing business.
Lowe’s Cos. Inc. (LOW)
Lowe’s began as a one-location grain, feed and hardware store in rural North Carolina more than 100 years ago. From those humble beginnings, the company has grown into a $160 billion leader in the consumer discretionary sector, specifically in the home improvement retail segment.
The company has more than 2,300 locations in North America. Those are very impressive numbers, especially considering the company closed all of their stores in Mexico in 2019.
Homeowners and contractors can find almost anything they need at one of the company’s big-box outlets. Lowe’s sells hardware, tools, large and small appliances, lumber, doors and windows, cabinetry, supplies, landscaping materials and much more.
No one expects the company to set any growth records; analysts expect about 2% revenue growth in 2025. That said, earnings per share are expected to grow 7.3% next year, and the stock’s 1.6% dividend makes for a nice little bit of extra income to boot.
Ford Motor Co. (F)
Ford — with General Motors Co. (GM) and Stellantis N.V. (STLA) — is one of the “Big Three” automakers and one of the most iconic U.S. publicly traded companies.
The $43 billion automotive company designs, builds and sells trucks, cars, minivans, SUVs and other vehicles to individual and commercial customers around the world. Beyond auto sales, Ford also generates excellent revenue from its parts and services divisions and is making significant inroads in the electric vehicle, or EV, market.
The stock currently yields 5.5%.
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Tesla Inc. (TSLA)
TSLA is unique among consumer discretionary stocks in that it is both an automaker and a renewable energy company, if we’re using that designation a little loosely.
This $700 billion firm engineers, builds and sells the most famous and popular EVs in the world. It also offers a full line of solar-powered electric generation and storage systems to individuals and businesses. Most of its customers reside in the U.S. and China, but TSLA has a growing customer base all over the world.
Much of the company’s popularity is due to the notoriety of its high-profile CEO, Elon Musk. Despite profit margins of around 13%, which some industries would consider paltry, that figure is multiples higher than its most direct competitors in the auto industry like Ford (2.1%) and General Motors Co. (GM) at 6.2%.
Analysts expect earnings per share to grow by nearly 34% in 2025.
Netflix Inc. (NFLX)
Entertainment streaming is a relatively young and incredibly competitive industry within the consumer discretionary sector. NFLX is an established leader in the field.
NFLX offers its roughly 260 million subscribers all kinds of entertainment options including TV shows, full-length movies, animated features, documentaries, video games and more. Customers can view content on their smartphones, computers, TV sets or other digital video players.
The company is less than 30 years old, yet has operations in 190 countries. Despite its size, Netflix is still growing at a healthy clip, with analysts expecting 12% revenue growth in 2025.
Morgan Stanley reiterated its “overweight” rating on the stock in a research note on Oct. 10, giving it a price target of $820 per share. NFLX stock closed Oct. 15 at $705.98.
Target Corp. (TGT)
Minneapolis-based Target is a general merchandise retailer with a market cap of around $74 billion. The company generates significant revenue from apparel sales, especially clothing for women, children and babies, but it also offers shoes, personal hygiene products, household products, costume jewelry, pet supplies, housewares, small appliances, electronics and, in select stores, groceries, deli, bakery and frozen food as well.
CFRA Research Equity Analyst Arun Sundaram is bullish on TGT. He has a “buy” rating on the stock based on what he sees as exceptional earnings growth potential. In a research report dated Oct. 12, Sundaram forecasted 13% EPS growth for fiscal 2025 (its current fiscal year), and 10% EPS growth in fiscal 2026. He noted that he expects strong Halloween and holiday sales and he sees the company’s share buyback program as a very positive factor.
Income investors will appreciate the stock’s dividend yield of 2.8%.
Marriott International Inc. (MAR)
Marriott is one of the best-known names in the hospitality industry, which is an important segment of the consumer discretionary sector. MAR has a healthy market cap of $74 billion. The company owns, operates and franchises hotels, resorts, residential communities, timeshares and several other types of lodging properties in the U.S. and internationally.
Some of the company’s most popular and best-known brands are Marriott, Ritz-Carlton, St. Regis, Westin and Sheraton.
On Sept. 18, Goldman Sachs initiated coverage of MAR with a “buy” rating based on an improving revenue and earnings picture. Analysts expect revenue growth of 6% and earnings per share growth of 13% in 2025, while the stock’s dividend currently sits at 1%.
Vanguard Consumer Discretionary Index Fund ETF Shares (VCR)
Investors who appreciate enhanced diversification and prefer to leave the stock picking to professionals may want to consider an ETF rather than an individual stock.
A $6.5 billion Vanguard index ETF, VCR is a good choice for people looking to allocate capital to the consumer discretionary sector. This low-cost fund tracks the MSCI US Investable Market Consumer Discretionary 25/50 Index.
In keeping with the benchmark, the fund invests in a broad range of consumer discretionary stocks like McDonald’s Corp. (MCD), Starbucks Corp. (SBUX) and TJX Cos. Inc. (TJX), each of which can be found among the fund’s top 10 holdings.
The fund follows the 25/50 rule. That means that no single stock can make up more than 25% of the fund and the combined weighting of companies that are over 5% of assets cannot exceed 50% of the fund. The idea behind the 25/50 rule is to promote diversification by balancing rather than concentrating holdings.
VCR has a very reasonable expense ratio of just 0.10%.
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8 Best Consumer Discretionary Stocks and ETFs to Buy originally appeared on usnews.com
Update 10/16/24: This story was previously published at an earlier date and has been updated with new information.
