Top Consumer Discretionary Stocks

Companies in the consumer discretionary sector sell nonessential goods and services, such as appliances, cars, and entertainment. Consumer discretionary companies tend to be more sensitive to the overall business cycle because people are more likely to reduce or postpone discretionary purchases during economic slowdowns and periods of high unemployment. Discretionary stocks outperform the market during economic expansions and they underperform it during contractions.

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.

Consumer discretionary stocks, represented by the Consumer Discretionary Select Sector SPDR ETF (XLY), posted a total return of -18.2% compared with -25.8% for the Russell 1000during the past year. These market performance figures and all data in the tables below are as of Oct. 21, 2022.

Here are the top three consumer discretionary stocks with the best value, the fastest growth, and the most momentum.

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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• Thor Industries Inc.: Thor Industries is a manufacturer of recreational vehicles, including dozens of brands such as Airstream, Heartland, Jayco, Keystone, and Starcraft. The company sells its products in North America and Europe.
• PVH Corp.: PVH is a clothing and apparel company that designs, makes, and sells apparel, footwear, and accessories. Its brands include Calvin Klein, True & Co., and Tommy Hilfiger. On Aug. 30, the company reported that net income and net sales fell year-over-year (YOY) during the second quarter. The company said results were weighed down by global supply chain disruptions, the COVID-19 pandemic, and the slowing U.S. economy.
• Macy's Inc.: Macy's is a retail company that operates brick-and-mortar department stores, ecommerce sites, and mobile applications. It operates under the brands Macy's, Bloomingdale's, and Bluemercury. Its products include apparel, accessories, home furnishings, and other consumer goods. On Sept. 28, Macy's announced the launch of a digital marketplace featuring 20 product categories and 400 new brands curated by third-party merchants and brand partners.
  

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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• Marriott Vacations Worldwide Corp.: Marriott Vacations Worldwide provides vacation ownership, rental, resort, and related products and services. It also operates exchange networks and membership programs. On Oct. 6, Marriott paid a dividend of $0.62 a share to common shareholders.
• Hilton Worldwide Holdings Inc.: Hilton Worldwide Holdings Hilton is a global hospitality company with more nearly 6,500 properties. It manages, franchises, or owns properties including Hilton Hotels & Resorts, Hilton Garden Inn, DoubleTree by Hilton, and Hilton Grand Vacations.
• Marriott International Inc.: Marriott International is a licenses, franchises, and operates residential, hotel, and timeshare properties brand names including Westin, St. Regis, Sheraton, Residence Inn, and Marriott Courtyard.
  

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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• H&R Block Inc.: H&R Block provides tax preparation services through its subsidiaries. The company offers in-person, online, mobile, and desktop services as well as small business financial services.
• AutoZone Inc.: AutoZone retails and distributes automotive parts and accessories. It provides replacement parts, accessories, and maintenance items for cars, SUVs, vans, and light trucks. The company has locations in the U.S., Mexico, and Brazil. On Oct. 4, AutoZone said the board authorized $2.5 billion in stock buybacks. The board has approved total of $33.7 billion in stock repurchases since 1998.
• Genuine Parts Co.: Genuine Parts distributes automotive replacement parts and accessories, industrial replacement parts, and related supplies to a broad range of customers including in maintenance, repair, and manufacturing. It serves customers in North America, Europe, and Asia. On Oct. 20, Genuine Parts reported that net income increased 37% on rising revenue. Earnings were driven by strength in the company's industrial and automotive businesses.
  

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 ecommerce 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 the supply chain. 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 would-be 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 2021. 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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