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 consumers are more likely to reduce or postpone discretionary purchases when times are tough. Therefore, discretionary stocks outperform the overall market during economic expansions, but they underperform it during economic contractions.
By contrast, companies in the consumer staples sector sell essential items such as food and beverages, which are less sensitive to business cycles. Prominent examples of consumer staples companies are The Home Depot Inc. and McDonald’s Corp.
Consumer discretionary stocks, which are represented by an exchange-traded fund (ETF)—the Consumer Discretionary Select Sector SPDR ETF (XLY)—have underperformed the broader market, providing investors with a total return of -16.3% compared with the Russell 1000’s total return of -9.4% over the past 12 months. These market performance figures and all data in the tables below are as of June 24, 2022.
Here are the top three consumer discretionary stocks with the best value, the fastest growth, and the most momentum.
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.
|Best Value Consumer Discretionary Stocks|
|Price ($)||Market Capitalization (Market Cap) ($B)||12-Month Trailing P/E Ratio|
|eBay Inc. (EBAY)||45.67||25.6||2.5|
|Foot Locker Inc. (FL)||29.55||2.8||3.6|
|Thor Industries Inc. (THO)||79.40||4.3||3.9|
- eBay Inc.: eBay is a global ecommerce company that connects millions of sellers and buyers in 190 global markets. The company has 142 million active buyers worldwide. On June 22, eBay announced that it had acquired KnownOrigin, a non-fungible token (NFT) marketplace. KnownOrigin’s platform is used by artists as a place to create digital collectibles in the form of NFTs. Terms of the deal were not disclosed.
- Foot Locker Inc.: Foot Locker is an athletic footwear and apparel retailer that sells a global portfolio of brands, including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and Sidestep. It sells in physical stores and direct to consumers via the internet and catalogs.
- Thor Industries Inc.: Thor Industries is one of the world’s largest manufacturer of recreational vehicles, including dozens of brands such as Airstream, Heartland, Jayco, Keystone, and Starcraft. The company sells its products mainly in North America and Europe. On June 8, Thor reported financial results for Q3 FY 2022 ended April 30. Net income attributable to Thor nearly doubled as net sales climbed by 34.6% year-over-year (YOY). Both an increase in unit sales and higher average sales prices contributed to results.
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 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.
- Tesla Inc.: Tesla, the world’s largest automaker by market value, is primarily engaged in the design and manufacture of electric cars, SUVs, and trucks, as well as electric vehicle powertrain components. The automaker also manufactures and installs solar energy generation and energy storage products.
- Planet Fitness Inc.: Planet Fitness franchises and operates more than 2,100 fitness centers across the United States and in Canada, Mexico, Australia, and Panama. On May 10, the company reported earnings for Q1 2022. Net income attributable to Planet Fitness more than tripled YOY as total revenue surged 66.9%. Rising sales in the company’s franchise, company-owned, and equipment segments contributed to growth.
- Lithia Motors Inc.: Lithia Motors operates retail automotive franchises selling domestic, import, and luxury vehicles. The company’s franchises sell a range of popular brands of vehicles, including Chrysler, Toyota, Honda, Mercedes-Benz, Land Rover, and many others.
These are the consumer discretionary stocks that had the highest total return over the past 12 months.
|Consumer Discretionary Stocks with the Most Momentum|
|Price ($)||Market Cap ($B)||12-Month Trailing Total Return (%)|
|Penske Automotive Group Inc. (PAG)||111.17||8.4||53.0|
|H&R Block Inc. (HRB)||34.82||5.5||47.3|
|AutoZone Inc. (AZO)||2,158.91||41.1||46.1|
|Russell 1000 Index||N/A||N/A||-9.4|
|Consumer Discretionary Select Sector SPDR ETF (XLY)||N/A||N/A||-16.3|
- Penske Automotive Group Inc.: Penske Automotive Group is a major international transportation services company that sells cars and trucks. It operates automobile and commercial truck dealerships across the U.S. and in the United Kingdom, Canada, Japan, and other nations. In its report for Q1 2022, issued on April 27, Penske announced all-time record quarterly results. Net income more than doubled while revenue climbed by 20.8% YOY. Quarterly results were boosted by acquisitions, and by robust growth in earnings before taxes including from retail automotive, North American commercial truck retail, and Penske Australia. Penske is expected to report Q2 2022 earnings on July 28, 2022.
- H&R Block Inc.: H&R Block provides tax preparation services through its subsidiaries. The company offers in-person, online, mobile, and desktop tax preparation 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 May 24, AutoZone reported results for Q3 FY 2022, ended May 7. For that period, net income declined slightly while net sales grew by 5.9%. The results were affected by higher operating expenses as a percent of sales, falling gross margin, and and unusually strong comparable store sales for the prior-year.
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