Consumer Discretionary Stocks

Invest in the best consumer discretionary stocks with Interactive Brokers for fast and easy execution.

The consumer discretionary stocks sector is made up of companies that manufacture products and provide services that consumers purchase on a discretionary basis, such as luxury apparel and household furniture or appliances. This sector includes some of the world’s most well-known and largest companies, such as Home Depot, McDonald’s, and Nike. 

Stocks in the consumer discretionary sector, which are holistically represented by the Invesco S&P 500® Equal Wt Cnsm Disc ETF (RCD), have broadly outperformed the market as RCD has provided investors with a return of 41.09% over the past 12 months, above the S&P 500’s total returns of 31.13%. 

Here are the top consumer discretionary stocks with the highest growth, greatest value, strongest momentum, and most searches on Google.

Overview: Consumer Discretionary Stocks

When you invest in these stocks, you invest in the American consumer. These stocks tend to perform exceptionally well when Americans spend money. However, when people tighten their budgets, these stocks may not fare as well. 

These stocks are cyclical stocks. Stock prices tend to follow economic cycles of expansion, peak, contraction and recovery. Consumer discretionary companies see strong demand and sales during periods of economic expansion. This is because when people have more income, they tend to spend more money on apparel, jewelry, cars, entertainment, dining out, vacations, toys and gym memberships, among other things. 

Consumer discretionary stock prices tend to underperform when the economy contracts. That said, there are many well-managed companies in this sector with a proven track record of steady returns even in the worst economic climates. 

Best Online Brokers for Consumer Discretionary Stocks

It’s important to find the right broker that caters to your specific investing needs. Whether you value the most up-to-date research or low commission fees, these are some of the best picks.

Features to Look for in Consumer Discretionary Stocks

• Earnings per share: Be on the lookout for stocks with growing earnings per share (EPS). Positive and growing EPS is a signal of increasing profitability and higher profit margins. These factors can help a company claim more market share and hold its ground through an economic slowdown. EPS is calculated by subtracting preferred dividends from net income and then dividing the difference. 
• Revenue growth: Revenue growth is the increase in sales from 1 period to another. This metric gives you an idea of how the company’s sales are growing and consumer demand. Robust revenue growth is a signal of customer loyalty, which can lead to more market share. Revenue growth is expressed as a percentage. It’s found on a company’s quarterly reports under “net revenue” or “net sales.”
• Dividend yield: The ability for a company to consistently return some of its profits to investors through dividends is a sign of strength and stability. This is especially true for consumer discretionaries that have been known to be sensitive to economic conditions. The dividend yield is the payout investors receive for owning 1 share of the company divided by the current stock price. It’s expressed as a percentage. 

Managing the Volatility of Consumer Discretionary Stocks 

Because these stocks follow the market, they tend to get a reputation for being volatile. While there is some truth to this generalization, it overlooks some key points about investing in these stocks. 

If you choose a consumer discretionary stock with a strong customer base, sound financials and proven track record of revenue growth it will likely rebound and grow after a slowdown. The same way the economy bounces back from a lull — and so do the best consumer discretionary companies. 

A good investment strategy is to buy these when the market contracts. This way you will position yourself better when the market rebounds. It’s also a good idea to wait out the storm and only sell your position when the market is back on top. 

Often, the best consumer discretionary stocks are not the cheapest to buy into. If you’re looking to invest in growth stocks for a smaller amount, take a look at Benzinga’s picks for stocks under $5, stocks under $10 and stocks under $20.

All in all,these stocks may come with their fair share of volatility but the long-run returns can be well worth the hassle.

Frequently Asked Questions

Methodology

To create a specific set of companies and their respective stocks that fall under certain criteria, we utilized a screener to examine the top stocks under each criterion. For value companies, we analyzed the companies with the lowest forward P/E, current P/E, and P/E/G multiples; for growth companies, we analyzed high earnings and revenue growth - weighing them equally; for momentum, we looked at price growth in the past 52 weeks; for trending tech, we examined the stocks with the highest percent of search increment on Benzinga.