Companies in the consumer discretionary sector make products that are popular, but non-essential. Examples of consumer discretionary products include cars, electronics, and certain types of clothes. In this article, we’ll talk about the best consumer discretionary stocks to add to your portfolio right now.
We’re currently in a recession, which means that many people aren’t buying these non-essential products. However, that doesn’t mean that you should avoid consumer discretionary stocks. Many of these brands have plenty of potential for long term growth once the economy improves.
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Best Consumer Discretionary Stocks
Vanguard Consumer Discretionary ETF (VCR)
The Vanguard Consumer Discretionary ETF isn’t actually a stock. Instead, it’s an ETF that uses a benchmark index of top consumer discretionary stocks. This is a great way to invest in consumer discretionary companies without putting all your eggs in one basket.
This ETF’s price per share has steadily gone up since its inception in 2004. While share prices took a sharp dip in March 2020, they had fully recovered by June. The ETF now trades at an all-time high.
This ETF has a very balanced portfolio that spans many different industries. Their portfolio includes automotive, electronics, apparel, restaurants, home improvement, and more.
Right now, Vanguard lists their largest holdings in this ETF as Amazon, Tesla Inc., Home Depot, Nike, and McDonald’s.
Tesla, Inc. (NASDAQ: TSLA)
Tesla is one of the most buzzworthy stocks on the market right now. Most people know them for their flashy electric cars, but the company also makes solar panels and other clean energy products. They company is run by celebrity entrepreneur Elon Musk.
Global climate change has forced consumers around the world to consider new environmentally friendly sources of energy and transportation. Tesla has expanded their operations globally to meet international demand.
In 2020, Tesla hit some major milestones. They had four consistently profitable quarters between July 2019 and June 2020. Their current year over year returns are nearly 700 percent, and they have the largest market capitalization of any auto manufacturer in the world.
Tesla was also added to the S&P 500 Index in December 2020. Their market cap is now over $750 billion. Wall Street has been watching this company like a hawk to see if they can continue this momentum.
Some investors were concerned after Tesla failed to meet their EPS estimates on their most recent earnings report. Their stock price dropped slightly as a result.
However, there were plenty of positive things to come out of this earnings report as well. Most notably, Tesla has managed to remain profitable despite the challenges of the pandemic. Additionally, they have increased their production output.
These factors indicate that it might be time to buy the dip for Tesla. The company has a huge market share and brand recognition that makes it unlikely to slow down anytime soon.
Peloton Interactive, Inc. (NASDAQ: PTON)
Peloton Interactive Inc. is another company that investors have had their eye over the past year. The company is known for their high-end fitness equipment. They make bikes and treadmills that stream workout classes directly into the consumer’s home.
COVID-19 shutdowns around the world meant that fitness junkies couldn’t go to the gym to take their favorite workout classes. As a result, many people started buying Peloton’s at-home fitness equipment.
Peloton shares went from approximately $32 each at the beginning of 2020 to approximately $146 per share now. Their most recent earnings report was also very promising. They dramatically outperformed estimates on both revenue and EPS.
In fact, Peloton’s products are in such high demand that the company has had a difficult time keeping up with supply. We can expect shutdown orders to continue around the world for at least a few more months, so people will continue needing at-home exercise solutions.
Etsy, Inc. (NASDAQ: ETSY)
Etsy is an e-commerce site that has changed the way that craftspeople sell their products. Users can create their own shops to sell products like jewelry, home decor, clothes, and more. Etsy saw huge returns throughout 2020, and data indicates that the stock could continue to grow throughout 2021.
As more people were spending time at home, they were turning to e-commerce platforms like Etsy instead of brick and mortar stores. Many people also started selling on Etsy as a way to make extra income.
Etsy’s revenue numbers have been very strong this year. Their sales come from a diverse range of goods as well, which proves that Etsy has the longevity to succeed beyond the pandemic.
Top Consumer Discretionary Stocks
Nike, Inc. (NYSE: NKE)
Nike makes some of the world’s most popular running shoes, as well as a range of other athletic apparel. They have a long history as one of the most successful consumer discretionary stocks on the market.
Nike is based in Portland, Oregon. They sell their products in retail stores around the world, and they also have a large e-commerce operation. Over the years, they’ve sponsored some of the world’s most popular athletes. In fact, their sponsorship of Michael Jordan helped popularize the brand in the late 1980s.
As with many other companies in the consumer discretionary sector, Nike struggled with sales in 2020. Their share prices took a hit when the stock market crashed in March, but they have since been able to recover quite effectively.
One of the reasons why Nike was able to recover fairly quickly is because they are very digitally savvy. They were an early adopter of email marketing strategies and have always been able to connect with consumers who didn’t necessarily consider themselves athletes through creative media.
During the pandemic, Nike focused on their mobile apps to connect with consumers who were working out at home. They have two apps that guide users through at-home workouts: Nike Training Club and Nike Run Club.
Nike also has an app called SNKRS, which caters to ‘sneakerheads’ who shop for rare shoes. Through their apps, Nike has been able to stay relevant and provide users with an interactive experience. This established company is definitely one to watch as the market recovers.
Home Depot, Inc. (NYSE: HD)
Home Depot is an American chain of home improvement stores. They sell tools, construction goods, home furnishings, and more.
This company saw their stock drop dramatically at the beginning of the pandemic, but it recovered just a few months later. Since people were spending more time at home, there was actually increased demand for Home Depot’s products.
There are a number of factors that make Home Depot’s stock appealing. Since people have been spending more time at home, they’ve been working on home improvement projects. Additionally, recent data shows that more people are building new homes than before. This is because mortgage rates are very low right now.
In addition to their consistent share growth, this company has excellent revenue and EPS numbers. They also have a solid dividend yield of 2.22 percent. Their free cash flow also indicates effective management.
Walt Disney Co. (NYSE: DIS)
Walt Disney is a consumer discretionary company that has managed to perform well despite the pandemic. Their operations are very diverse, so even though they struggled in some sectors, they managed to balance things out with their other ventures.
Disney’s theme parks had to close during the pandemic. Movie theaters also closed in many places and have yet to re-open. Because of this, Disney decided to focus on direct to consumer entertainment.
The company launched their streaming service, Disney+, at the end of 2019. This new venture has managed to balance out the company’s other losses. The service currently has over 80 million subscribers and is consistently growing.
They also own the television networks ABC, ESPN and Hulu, another popular streaming service. Additionally, they own popular franchises like Marvel and Star Wars.
Disney stock is already performing well, but it has the potential to grow even more when the pandemic comes to an end. Disney+ will likely continue to perform well, but the company will also be able to boost their revenue when they reopen their theme parks.
Consumer Discretionary Penny Stocks
Ford Motor Co. (NYSE: F)
While not technically a penny stock, Ford Motor Co. is trading at a very affordable price right now. Their stock costs approximately $10 per share. The company has been around for nearly 120 years and is based in the Detroit, Michigan area.
Over the years, Ford has struggled to compete with international auto manufacturers. However, their shares have been on the way up since the March stock market crash. They had a particularly strong rally throughout December and January.
Ford currently has a Zacks rank of 1. This means that analysts have determined that the company is a good buy right now based on existing data.
Ford also has an incredible dividend yield of 5.7 percent right now. This makes it one of the top dividend stocks in the consumer discretionary sector.
Consumer Discretionary Stocks That Pay Dividends
McDonald’s Corp. (NYSE: MCD)
McDonald’s is the largest restaurant company in the world, with over 37,000 restaurants throughout the world. The restaurant is often considered a symbol of American culture, but they’ve adapted over the years to stay relevant. They are a top consumer discretionary stock in the food sector.
The company was able to transition to a takeout-only operation fairly easily during the pandemic. Many of their locations already had drive-throughs, which made it easy for them to continue service even with indoor seating closed.
They’ve also used technology to streamline their operations and minimize contact with customers during the pandemic. Many of their stores now have kiosks where you can order automatically, and they accept mobile orders as well. You can also order McDonald’s delivery on Uber Eats and DoorDash.
McDonald’s is an excellent dividend stock. Right now, they have a dividend yield of 2.48 percent. They have also consistently increased their dividends for decades. This makes it a great choice for investors who want to boost their net income in the long run.
Should You Buy Consumer Discretionary Stocks?
The pandemic and resulting recession have forced many people to cut back on their expenses. As a result, many investors are avoiding consumer discretionary stocks right now and are focusing instead on consumer staples. However, now could actually be a great time to buy consumer discretionary stocks.
Many consumer discretionary stocks saw their revenue drop in 2020, and in many cases, their stock prices dropped with it. However, established consumer discretionary brands will likely see their stock prices rise in the near future as the economy recovers. Now is a great time to buy these stocks while they’re still trading at relatively low prices.
Countries around the world are working on distributing the COVID-19 vaccine. When we reach safe levels of herd immunity, we will be able to reopen important parts of our economy. Eventually, people will be able to start purchasing these popular consumer discretionary products again.
The key when buying consumer discretionary stocks is to look for companies that have a long history of financial success over the years. Companies that have been able to ride out poor economies in the past likely have the brand recognition and strong management to do it again.
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Consumer Discretionary Stocks: Final Thoughts
Consumer discretionary stocks are a great way to balance out your portfolio. Their share prices do tend to fluctuate based on the current economy, but investors who time the market right can see huge returns. Many of the top consumer discretionary stocks on the market are important parts of our culture. Now is a great time to buy stocks in consumer discretionary companies as the market is on its way up.