Top Mid-Cap Consumer Discretionary Stocks

Consumer discretionary spending is a term for the money consumers spend on nonessential products and services. In turn, discretionary income is often the money that is left over after a consumer has met primary needs such as food, shelter, and clothing. With extra money available, consumers have a choice on how to allocate it. Prudent options include saving or investing for the future, but the more popular option is to spend.

Here's where companies within the consumer discretionary sector enter the picture because they are the ones that produce the items for consumers to spend their extra money on, such as entertainment, luxury apparel, leisure activities, and automobiles. After a couple of years of various pandemic restrictions and lockdowns, along with rising inflation and supply chain bottlenecks, people are looking to spend some of their savings, which will likely benefit the companies within the consumer discretionary sector and their shareholders.

In this article, we'll look at medium-sized businesses (also known as mid-caps) within the consumer discretionary sector and discuss why they could be uniquely positioned to move higher over the weeks and months to come.

Key Takeaways

  • Consumer spending on products within the consumer discretionary sector often serves as a sign of overall economic health.
  • Discount retailers make for lucrative investments during times when consumers are closely watching their discretionary spending.
  • Trends around the types of goods that consumers spend their discretionary income on drastically affect share prices across the consumer discretionary sector. New and used cars, bargain-priced goods, and home furnishings are several categories that could be of interest over the months ahead.

How to Choose Mid-Cap Consumer Discretionary Companies

As a method for identifying top mid-cap discretionary companies, we analyzed the top 50 holdings of the top five mid-cap-focused exchange-traded funds (ETFs). We filtered the holdings by sector and then further analyzed them based on the amount of capital invested in each, as well as their popularity. Presented below is the list of the top 10 mid-cap consumer discretionary companies that resulted from the analysis.

· Aptiv PLC (APTV)
· Service Corporation International (SCI)
· Williams-Sonoma Inc. (WSM)
· GameStop Corp. Class A (GME)
· Five Below Inc. (FIVE)
· Lithia Motors Inc. (LAD)
· D.R. Horton Inc. (DHI)
· Lennar Corp. (LEN)
· O'Reilly Automotive, Inc. (ORLY)
· Chipotle Mexican Grill Inc. (CMG)

Lithia Motors, Inc. (LAD)

The purchase of a new or used vehicle is commonly one of the largest financial transactions of a person's life. Spending days or months looking to find the perfect vehicle—whether based on the model, color, or price—is the norm. As prices of new and used vehicles continue to be at historically high levels, one group that is uniquely positioned to benefit is the automotive dealerships. With a market capitalization of approximately $8.6 billion, Lithia Motors, Inc. (LAD) is one such company. With a broad coast-to-coast automotive dealership network of 267 locations selling over 60,000 vehicles as of April 18, 2022, Lithia Motors is one of the largest operators within the U.S.

Looking at the weekly chart below, you'll notice that the price of Lithia Motors shares has significantly outperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) since the start of the COVID-19 pandemic. Strategic investors may want to consider keeping an eye on the automotive dealerships over the coming months as supply constraints will likely continue to be a major driver of prices and resultant corporate margins over the months ahead.

Relative performance of LAD and XLY between 2020 and 2022.

Williams-Sonoma, Inc. (WSM)

Williams-Sonoma, Inc. (WSM) is a well-known specialty retailer of high-quality products for the home. As of April 18, 2022, the company has a market capitalization of approximately $10.6 billion and is held within the iShares Core S&P Mid-Cap ETF (IJH). Williams-Sonoma is positioned to benefit from increased consumer discretionary spending because many people are still spending more time at home than they did prior to the pandemic and as a result are noticing things about their living spaces that they'd like to change.

Looking at the weekly chart below, you can see that Williams-Sonoma has strongly outperformed the rest of the consumer discretionary sector, as measured by the XLY ETF, since the start of the pandemic. The macro trend of increased spending on home renovations and associated furnishings is one that is likely to continue, and Williams-Sonoma is uniquely positioned within the mid-cap space to benefit.

Relative performance of WSM and XLY between 2020 and 2022.


Investors often look to the consumer discretionary sector as a beacon for the overall strength of the economy. A weakening of share prices across the broad consumer discretionary sector can serve as a leading indicator of an economic contraction.

Five Below, Inc. (FIVE)

The growth of discount retailers such as Dollar Tree, Inc. (DLTR) over the past decade has been nothing short of astonishing. The share price has risen by more than 1,500% since 2005, and the company has grown to a current market cap of approximately $39 billion as of April 18, 2022. Within the discount retail industry, larger firms such as Dollar Tree and Dollar General Corporation (DG) get most of the attention. However, one mid-cap company within the space, which is also a holding of the iShares Core S&P Mid-Cap ETF, is not as well known but could be worth a closer look. With a market capitalization of approximately $10 billion as of April 18, 2022, Five Below, Inc. (FIVE) offers products at a slightly higher price point relative to those of its direct competitors. Most products within its more than 1,200 stores sell at prices between $1 and $5, which gives the company some extra room for healthy profit margins relative to its competitors. Some products sell for more than $5, but these are often an exception in relation to its broader product mix.

Looking at the weekly chart below, you'll notice that the company's stock price outperformed the XLY ETF for much of 2021, but it has been strongly correlated in 2022. From a trader's perspective, the slight uptick in recent weeks could suggest that the price will return to the type of relative outperformance that it was experiencing previously.

Relative performance of FIVE and XLY between 2020 and 2022.

The Bottom Line

The consumer discretionary sector benefits when consumers have extra money in their wallets and are looking to spend it. Whether it's buying a new or used car, furnishing the interior of one's living space, or buying interesting products at affordable prices, the consumer discretionary sector of the mid-cap market segment offers investors plenty of interesting opportunities.

What Does Consumer Discretionary Spending Mean?

Consumer discretionary spending refers to the goods and services that consumers purchase with money that is left over after paying for necessities such as food and shelter. The companies that produce the goods that consumers spend their discretionary income on are collectively known as the consumer discretionary sector.

What Is a Mid-Cap Consumer Discretionary Company?

A mid-cap consumer discretionary company refers to a medium-sized business, typically with a market capitalization between $2 billion and $10 billion, that sells products that consumers purchase with discretionary income. The products within this sector are often regarded as nonessential, and the success of these businesses greatly depends on the state of the economy.

Is There Such Thing as a Consumer Discretionary ETF?

Many investors look to gain exposure to specific sectors of the market such as consumer discretionary. There are several ETFs that are available that are designed specifically to track the consumer discretionary sector such as the Select Sector SPDR Fund (XLY).

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  1. Lithia Motors, Inc. "Home Page."

  2. Five Below, Inc. "Investor Home."

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