Are These The Best Consumer Discretionary Stocks In The Stock Market?
When it comes to purchasing goods, there are things you need, and there are things that you desire. The consumer discretionary stocks cover the latter, companies selling clothes, cars, and some other forms of entertainment. Many of them have unfortunately not done very well this year. Basically, if it’s something that you’d cut out of your budget during tough economic times, it’s discretionary. Since these companies are not created equally, they are not performing equally bad either. The fact that top consumer discretionary stocks tend to move about with the overall economy makes them cyclical stocks. For consumer discretionary companies who have outperformed their industry peers, especially during the coronavirus pandemic, they are worth a closer look.
Consumer staples stocks, which provide the necessities, have held up far better than the broader market as Americans stock up to avoid catching the insidious virus. For instance, companies like Walmart (WMT Stock Report) and Costco Wholesale Corporation (COST Stock Report) have seen their businesses performing better than ever. This came as consumers rushed to stock up necessities, sending both WMT stock and COST stock to their all-time highs.
Of course, looking for top consumer discretionary stocks to buy during a pandemic is no easy feat, but that doesn’t mean it’s impossible. If investor attraction to these stocks could be narrowed down to one factor, it would probably be growth. But there’s also another side to a coin. And that is these businesses can endure sharp slowdowns during an economic downturn. Thus, investors should bear in mind the possibility of having to stomach paper losses during a downcycle. Of course, those losses will hopefully turn into gains during boom times. That said, if you can find consumer companies that can still post record growth during an economic meltdown, how do you think they would perform post-pandemic? With all that in mind, do you have these consumer discretionary companies on your list of best stocks to buy?
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Top Consumer Discretionary Stocks To Watch Now: Best Buy Co
First, up the list, Best Buy (BBY Stock Report) is one of the consumer discretionary companies that perform relatively well during the pandemic. The company is a market leader when it comes to consumer electronics. The massive surge in the number of people working from home and staying at home for longer played to Best Buy’s strengths. Best Buy’s stock rallied more than 120% since the coronavirus market crash in March. Despite some of the stores being closed down, consumers kept shopping. The demand for home essentials, such as computers and appliances, were the largest drivers of the chain’s sales. From a long term perspective, Best Buy should also benefit from a rise in remote health services.
Best Buy’s revenue and earnings could rise by 4% and 15% respectively this year, according to analysts. That’s before slowing slightly in 2021 after considering the purchases this year which are partially driven by the pandemic. The company is positioning itself for robust e-commerce growth going forward.
Total domestic online sales soared 240% year over year during the quarter. And management expects digital sales to comprise a higher percentage of customers’ shopping activity in a post-pandemic world. As a long-standing brand making big strides in e-commerce, is BBY stock a jewel in the sand?
Top Consumer Discretionary Stocks To Watch Now: Lululemon Athletica
Lululemon Athletica (LULU Stock Report) appears to be back on investors’ radar again after dropping more than 20% from its all-time high of $400 per share. The company seems to be rebounding strongly after the share repurchase program announced last week. The decline in LULU stock came despite the clothing company reporting stronger than expected second-quarter earnings.
Analysts continue to be bullish about the apparel’s prospects. That’s even as there is acknowledgment that the stock appears to be trading ahead of its fair value. In addition, the management also expressed a relatively positive outlook. CEO Calvin McDonald said, “we are cautiously optimistic with regard to the second half of the year as we continue to navigate the uncertain environment.” Still, Lululemon management declined to provide any clear guidance for the year, as COVID-19 continues to create an uncertain environment globally.
Like other stocks on the list, LULU stock has stayed strong due to the company’s strong e-commerce presence. Despite its retail stores being shuttered during the pandemic earlier this year, Lululemon still managed to turn a profit. This demonstrates the company’s potential, as most of its peers couldn’t manage the same feat during the pandemic. Having established its niche in the sportswear market, is Lululemon’s moat enough to drive returns for the years to come?
Top Consumer Discretionary Stocks To Watch Now: Nike
Nike (NKE Stock Report) took the market by storm last week by posting surprisingly strong fiscal first-quarter sales and earnings on 22 September. The stellar performance is due to the rebounding growth in major markets like the U.S. and China. The company is proving during the pandemic that its big bets in digital are paying off. Even as most of its stores were reopened, Nike’s digital sales soared 82% during the fiscal first quarter, beating analyst’s estimates.
“Nike’s decision to evolve into a digital-first organization has proved prudent, as the crisis continues to push consumers toward the digital channel,” Susquehanna analyst Sam Poser said. “Digital momentum is sticky. … [And] Nike has embraced the structural shift of consumer shopping habits from traditional brick-and-mortar to digital and will, in our view, continue to capitalize on this shift.”
Nike saw sharp sales rebounds in China. There, revenue growth accelerated to 8% compared to 1% last quarter. Meanwhile, in the U.S, revenue fell by just 1% after diving 46% earlier at the peak of COVID-19-related shutdowns. Despite many consumer discretionary companies still trading in the negative territory, NKE stock is trading 24% higher year-to-date. And that clearly demonstrates how astute the move to e-commerce was for Nike. Now that the company is able to find itself on firm footing again, is NKE stock the top consumer discretionary stock to buy right now?