Top Consumer Discretionary Stocks for March 2023

The top consumer discretionary stocks this month include Luckin Coffee Inc., Modine Manufacturing Co., and Arhaus Inc., all of which have climbed by over 100% in the last year and are outperforming rivals despite inflation and other economic headwinds.

The Russell 1000 Index has fallen by 3.5% in the past 12 months while the benchmark Consumer Discretionary Select Sector SPDR ETF (XLY) has lost more than a tenth of its value. Consumer discretionary spending on appliances, home furnishings, electronics and more has weakened in recent months amid high-interest rates and fears of a recession.

By contrast, companies in the consumer staples sector sell essential items such as food and beverages, which are less sensitive to business cycles. Consumer staples companies include The Home Depot, Inc. and McDonald's Corp.

We look below at the top consumer discretionary stocks by value, growth, and momentum factors. The market performance numbers above are as of March 6, while all company data below are as of March 1.

Best Value Consumer Discretionary Stocks

These are the consumer discretionary stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated. But they also could turn out to be a classic case of a value trap.

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• Light & Wonder Inc.: Formerly known as Scientific Games Corporation, Light & Wonder designs gaming content for casinos and related businesses. The company's net income plunged by about two-thirds to $21 million in the final quarter of 2022.
• Beazer Homes USA Inc.: Beazer designs and builds residential homes, primarily in the southern U.S.
• Companhia Brasileira de Distribuição: Companhia Brasileira de Distribuição is a Brazil-based retail company. It operates supermarkets, hypermarkets, electronics and household appliance stores, e-commerce sites, and a distribution network.
  

Fastest Growing Consumer Discretionary Stocks

These are the top consumer discretionary stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

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• Amadeus IT Group SA: Amadeus is a Spanish tourism and travel company. It provides transaction services for airlines, tour companies, hotels, and related businesses. The company said in February that it anticipates a dividend of €0.74 (about $0.79) per share to be approved in June 2023.
• Aptiv PLC: Aptiv is an Irish-American mobility technology company serving the automotive industry. Its net income increased almost 7-fold year-over-year in the most recent quarter.
• Ardagh Metal Packaging SA: Ardagh is a Luxembourgian maker of recyclable cans for soft drinks, sparkling water, beer, and other beverages. It serves customers in Europe, the U.S., and Brazil.
  

Consumer Discretionary Stocks With the Most Momentum

These are the consumer discretionary stocks that had the highest total return over the past 12 months.

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• Luckin Coffee Inc.: Luckin is a Chinese holding company that operates a coffee retail business. The company operates primarily through mobile apps and pick-up stores, selling fresh-brewed drinks, juices, and light meals.
• Modine Manufacturing Co.: Modine makes heat exchanges and related equipment for automotive aftermarket suppliers and building companies. In February, Modine announced the launch of Sentinel High Humidity, temperature- and humidity-control systems for K-12 schools in humid environments.
• Arhaus Inc.: Arhaus makes home furnishing products for distribution worldwide.
  

Advantages of Consumer Discretionary Stocks

Growing Economy: Consumer discretionary stocks capitalize on a healthy economy. Consumers with higher discretionary income levels are more likely to purchase "wants," such as new designer clothes, the latest electronic gadgets, or a long-awaited family vacation. Generally, the group performs well when consumer confidence is high, with shoppers feeling secure about their employment situation and financial position. Investors can track consumer sentiment by following the Consumer Confidence Index (CCI)—a survey administered by The Conference Board that measures how optimistic or pessimistic consumers are regarding their expected financial situation.

Brand: Many consumer discretionary stocks benefit from strong brand recognition, helping to drive revenue and create market share. Moreover, companies that build brand loyalty can enter new product areas, or even new industries, taking their existing customers with them. For example, Amazon.com, Inc. (AMZN) started as an online marketplace for books, but through increased brand awareness, it grew into an e-commerce giant and is now a global conglomerate involved in everything from digital streaming to logistics.  

Risks of Consumer Discretionary Stocks

Slowing Economy: Just as consumer discretionary stocks perform well during periods of economic expansion, they struggle in downturns and recessions when consumers rein in their spending on discretionary products and services.

Supply Chain Disruptions: Consumer discretionary companies face challenges from snarls in supply chains. For instance, during the COVID-19 pandemic, many companies in the sector faced months of disruptions from border closures, shipping delays, and cargo backlogs. These issues can increase costs and ultimately see companies in the group pass those expenses on to consumers.

Inflation: Rising prices can deter potential customers from purchasing discretionary items, particularly if consumer confidence starts to fall. Many economists have forecast a recession for the U.S. economy in 2023 after inflation hit a 40-year high of 9.1% in June 2022. Additionally, price hikes in other areas of the economy can have a contagion effect on consumer discretionary stocks. For example, a rise in airline tickets due to higher fuel costs can weaken demand for hotels.

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