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12 Best Consumer Discretionary Stocks to Buy

This means that they’ll most likely save less and instead make major purchases in the following 12 months. For example, they may postpone vacations and delay the purchase of products that aren’t essential for daily living. These products might include high-end clothing, big-screen televisions, and expensive new cars. The textiles, apparel, and luxury goods industry includes manufacturers of apparel merchandise, footwear, and a wide variety of accessories, such as handbags, eyewear, and travel-related goods. Examples of companies operating in this industry include Under Armour, Inc. (UA) and Coach, Inc. (COH). The media industry provides various entertainment content for consumers, including movies, TV programming, newspapers, magazines, and radio.

The consumer discretionary sector consists of a variety of industries that can be sensitive to changing economic conditions and bellwethers of consumer spending. The companies included in these industries react and adjust to changes in consumer discretionary income and purchases of non-essential products and services. The internet and catalog retail have been among the most rapid growth industries within the consumer discretionary sector, as consumers shifted to purchasing goods online. The industry includes companies that operate online marketplaces or their own online stores that sell a wide variety of consumer products.

• The coffee company plays a major role in how a large part of the world’s population starts its day.
• Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.
• Find Consumer Discretionary investments  Search stocks, ETFs, and mutual funds in this sector.
• The industry is highly competitive and consists of numerous companies of different sizes.

The COVID-19 pandemic impacted the consumer discretionary sector differently than it did the consumer staples sector, which sells necessities. This sector includes products and services people buy that aren’t strictly necessary but are nice to have, such as cars, travel, and entertainment. Some of the big companies in this sector include Ford (F), Disney (DIS), Marriott (MAR), Macy’s (M), Nike (NKE), Home Depot (HD), Tesla (TSLA), McDonald’s (MCD), and Delta Air Lines (DAL).

Auto Components Industry

While picking winning stocks can be challenging, there’s a potential for excellent returns over time. POLL is a famous department store that offers a variety of essential and non-essential products. Nevertheless, almost consumer discretionary meaning 50% of its inventories are consumer discretionary goods. Its sales are highly affected by economic cycles and performance since consumers buy these discretionary products when they feel financially confident.

And the specialty retail industry includes clothing stores such as Nordstrom (JWN), electronics retailers like Best Buy (BBY) and home improvement stores such as Home Depot (HD). Consumer discretionary stocks are also called consumer cyclical stocks, as they’re sensitive to changes in disposable income caused by economic cycles of expansion and recession. The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Companies that manufacture products and provide services that consumers purchase on a discretionary basis. Find Consumer Discretionary investments  Search stocks, ETFs, and mutual funds in this sector.

Consumer Discretionary Select Sector SPDR® Fund (XLY)

The stock shares of consumer discretionary companies tend to lead a general stock market decline at the beginning of a contraction. A growing economy—expansion to peak—is usually characterized by stronger earnings for businesses and consumers. A contracting economy—contraction to trough—generally has the opposite effect. The leisure products industry consists of companies that cater to consumers’ leisure activities, such as sports, toys, and various outdoor activities. Leisure goods include various camping equipment, toys, all-terrain vehicles, and golf carts.

For the consumer discretionary sector, State Street Global Advisors (SSGA) offers one of the market’s top options. When an economy is growing, many sectors see stock values increase and this can make equities attractive. The higher values are due to increasing profits and more discretionary consumer income.

What Are Consumer Discretionary Stocks?

Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. When it comes to consumer discretionary stocks, look no further than our Trade of the Day e-letter. The purchase of consumer discretionary products is often compared with the purchase of consumer staples.

Consumer discretionary purchasing usually increases when consumers have more money to spend. The specialty retail industry includes retail companies that specialize in selling specific categories of goods to consumers, such as apparel, electronics, home improvement, automotive retail, and home furnishings. As a result of the uncertainty, many consumer discretionary stocks have declined this year as investors anticipate potentially softer demand if a recession occurs next year. With the decline, many leading consumer discretionary stocks trade for fairly attractive valuations if the economy recovers and inflation normalizes in the long term.

One of the largest players in the auto part industry is Johnson Controls Inc. (JCI), which has a dominant position in the car seating, automotive interior, and auto batteries markets. Add discretionary spending to one of your lists below, or create a new one. The retailing industry group might sound self-explanatory — but it’s a bit harder to define than you might think. Consumer durables and apparel is a broad industry group consisting of almost every long-lasting or nonconsumable product you can buy. By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

This elastic demand means that it can plummet very quickly in response to decreases in consumers’ incomes or increases in prices of consumer discretionary goods. The sector includes numerous companies operating in various industries, including retail, media, restaurants, consumer durables, and apparel. Given consumers don’t have to buy consumer discretionary products or services, many consumer discretionary companies do well when the economy is strong and they don’t do as well when the economy is weak. During times when the economy is strong, consumers generally have more money to spend and many consumers spend more on premium items or services they don’t necessarily need. When the economy isn’t strong, many consumers will spend less on discretionary items.

TJX Companies

If they are worried about their income or the future of the economy, on the other hand, consumption will usually decline. The consumer discretionary sector of the economy consists of manufacturing and services industries with consumer discretionary companies. Normally, these companies and their industries are sensitive to changing economic conditions. The demand for consumer discretionary stocks normally increases or decreases as the economy grows or weakens.

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The multiline retail industry includes operators of department stores and other stores that sell general merchandise, such as hypermarkets and large-scale supercenters. Using the collective wisdom of hedge funds, we ranked the 12 consumer discretionary stocks based on the number of hedge funds in our database that owned shares of the same stock at the end of Q2 2022. Consumer discretionary stocks tend to perform well during economic expansions, making them attractive to investors who foresee an uptick in spending.

Individual stocks offer investors the chance to outperform market indexes like the S&P 500, but they come with some major risks and drawbacks. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page.

The automobile industry designs, produces, and markets cars, trucks, buses, and other types of vehicles. The industry is one of the most capital-intensive, as it requires billions of dollars to build plants and acquire technology. The largest global car manufacturers are Toyota Motor Corporation (TM) and Volkswagen (VOW3). In the near to medium term, however, there could be more downside if economic data doesn’t meet expectations.

Investors often turn their attention to consumer confidence when deciding between these two sectors. This crucial economic indicator, tracked by the University of Michigan’s consumer sentiment index, closely monitors consumer spending habits and optimism about the economy. Combined with metrics like the unemployment rate and inflation, they help predict consumers’ willingness to spend. Conversely, consumer staples stocks can be more resilient to changes in the business cycle since they provide essential items like food and beverages. Companies like Procter & Gamble (PG), Coca-Cola (KO), and Hershey (HSY) belong to this group. There are two options for how fund managers select securities within the ETF sphere — passive and actively managed funds.

Companies that provide direct-to-consumer products that, based on consumer purchasing habits, are typically considered nondiscretionary. Even in the ever-changing restaurant space, McDonald’s has found a way to stay relevant, and its growth numbers have been strong over the past several quarters as it’s been a winner in the economic reopening. Long after Michael Jordan left the professional basketball court, Air Jordan shoes remain a mainstay of Nike’s business. Nike’s market share of athletic footwear, recently estimated at 39%, puts it well ahead of international competitors Adidas (ADDYY -2.35%) and ASICS (ASCCF 1.26%). With the global sportswear company working to play a bigger role in fast-growing areas such as China, the sky’s the limit for Nike’s future growth. Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.