Consumer cyclicals stocks are heavily dependent upon the strength of the economy and broader business cycles. These are stocks of companies which produce goods and services consumers may not consider necessities but as discretionary purchases. Thus, in times of economic expansion and growth, sales of these goods tend to increase because consumers have additional money for retail and leisure spending.
Consumer cyclicals include a variety of industries such as housing, automotive, entertainment, and retail. Some of the many consumer cyclical companies include Walt Disney Company (DIS) and General Motors (GM), among others.
While the economy was strong for much of 2018, the last few weeks of the year brought stock gains to a halt. Indeed, companies across multiple sectors lost most or all of their yearly gains in the final weeks of the year, with the S&P 500 ending 2018 in the red overall. Fortunately, the first month of 2019 marked a sharp reversal of this trend. Strong employment news, renewed optimism about trade deals with China, and signs of flexibility from the Fed all helped spur overall growth in January of 2019, and many consumer cyclical stocks saw prices leap upward.
Here's a look at the top performing consumer cyclical stocks from major U.S. exchanges and from January 2019. Companies were included for consideration if their market cap was at least $10 billion, making them among the largest publicly-traded stocks. The list here is presented in order of monthly performance based on the opening stock price as of January 2, 2019, and closing price as of January 31, 2019. The performance has been compared to the S&P 500 Consumer Discretionary Index average returns of 9.22% for the same period as a benchmark.
- Consumer cyclical stocks depend on the strength of the economy, as well as broader business cycles.
- These stocks represent companies whose products may not be considered necessary but are purchased during economic expansion and growth
- Companies such as luxury car makers like Ferrari, and vacation and resort companies like Royal Caribbean Cruises and Wynn Resorts all performed well because of strong economic news and flexibility from the Fed.
- Ticker: RACE
- Market Cap: $23.50 billion
- Performance: 28.93%
Italian luxury carmaker Ferrari has been synonymous with high-end vehicles since its founding in the late 1940s. The company is known for its high margins and limited production, which sets it apart from mainstream auto manufacturing companies like General Motors. This all helps fuel the hype surrounding one of the most popular luxury brands in the world—Ferrari's order book typically sells out a year ahead of production.
The number of vehicles Ferrari shipped in 2018.
January was an incredible month for Ferrari. After its stock fell precipitously late in 2018, the company entered the new year topping many analysts' lists of recommended buys. The company made strong gains throughout the month, and when Ferrari posted a strong full-year forecast in the final hours of January, the stock raced ever higher, making it one of the best-performing names across all sectors for the first month of the year.
Alibaba Group Holding Ltd.
- Ticker: BABA
- Market Cap: $437.48 billion
- Performance: 24.67%
One of the largest companies in the world, China's Alibaba Group is a multinational conglomerate with interests in e-commerce, retail, technology, and more. The company is commonly included with other tech giants in the FAANG group, and its positions in the retail space also warrant its inclusion in the consumer cyclical category as well.
Alibaba gained about 23% for the month of January, increasing steadily over the course of the month. Part of these gains can be attributed to overall growth among Chinese stocks on the strength of renewed trade talks between China and the U.S. Additionally, Alibaba reported strong Q3 earnings toward the end of the month, which further propelled the stock price upward.
Royal Caribbean Cruises Ltd.
- Ticker: RCL
- Market Cap: $24.12 billion
- Performance: 24.00%
Florida-based Royal Caribbean is one of the largest operators of cruise lines in the world. The company is the full owner of Royal Caribbean International, Azamara Club Cruises, and Celebrity Cruises, and it maintains a significant stake in several other popular cruise lines around the world.
Under its four brands and with its joint ventures, Royal Caribbean operates a fleet of 61 ships.
The entire cruise line industry saw a boost in the first part of 2019 on the strength of an optimistic outlook issued by Royal Caribbean which called for 2019 net yield growth of up to 8.0%.
Melco Resorts & Entertainment Ltd.
- Ticker: MLCO
- Market Cap: $10.72 billion
- Performance: 22.47%
Melco Resorts is a holding company which owns and operates casinos and resort facilities throughout Asia. With primary operations in the Philippines and Macau, Melco is not a well-known brand in the U.S. However, its success in Asia is undisputed.
Late in January, Melco CEO Lawrence Ho indicated revenue growth for the company's Macau operations would be higher than many analyst estimates.
Wynn Resorts Ltd.
- Ticker: WYNN
- Market Cap: $13.52 billion
- Performance: 22.45%
Nevada's Wynn Resorts is an owner and operator of casinos and hotels. The company owns multiple properties around the world, with an emphasis on locations in Las Vegas and Asia. The company is developing its Encore Boston Harbor property in Everett, Massachusetts. This latest location is slated to open later in 2019.
At the end of January, Wynn reported Q4 2018 operating revenues of $1.69 billion, marking an increase of 4% year-over-year. While net income declined slightly compared with Q4 of 2017, the adjustment to the U.S. tax system produced a net tax benefit for the company.
Consumer cyclical stocks got off to an impressive start for 2019 as investor and customer sentiment reversed course in the new year. Whether or not these stocks will continue to thrive as the year goes on, however, remains to be seen. Much will likely depend on how the geopolitical landscape changes, whether trade negotiations with the U.S. and China go smoothly and how the Fed adjusts rates.