Consumer discretionary stocks have been a fairly predictable trade over the last five years. In 2020 and 2021, this was an ideal sector to buy as consumers were flush with stimulus cash, and online shopping was the national pastime. Travel stocks were left out during this run, but not to worry; they started to take off in 2022 and 2023.
In 2024, the story has been different. Lower- and middle-income consumers are showing signs of being tapped out for non-essential purchases, and even higher-income consumers are becoming more selective. This has narrowed the list of buyable stocks considerably. You don't need to worry about that if you have a long position, but if your timeline is shorter, it's concerning.
Nevertheless, the Federal Reserve is indicating that it's time to take a close look at this sector. The reason? Lower interest rates. There's no telling when that will happen, but you don't want to be out of consumer discretionary stocks when that pivot occurs. Here are seven names to consider.
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- Lululemon Athletica
- Marriott International
- Under Armour
- Pool Corporation
- Mastercraft Boat
- Electronic Arts
- Nintendo
#1 - Lululemon Athletica (NASDAQ:LULU)
Lululemon Athletica Inc. (NASDAQ: LULU) is the original fab-leisure brand. It’s synonymous with its iconic yoga pants, but the company has evolved into much more. That “more” includes a men’s line, which grew at a 15% clip in the first quarter of 2024.
The company continues to grow and is projecting double-digit revenue and earnings growth in 2024. Lululemon is on track to reach the goal of its Power of Three strategic initiative to double net revenue from $6.25 billion in 2021 to $12.5 billion by 2026.
But despite all that, the stock is down 40% in 2024 as many investors believe that all the growth is priced in, particuarly as consumers look for more affordable alternatives. However, trading at around 21x forward earnings, LULU stock looks attractively valued. With the MarketBeat analyst forecasts showing a 44% upside, this looks like a solid buy-the-dip candidate.
About Lululemon Athletica
Lululemon Athletica Inc, together with its subsidiaries, designs, distributes, and retails athletic apparel, footwear, and accessories under the lululemon brand for women and men. It offers pants, shorts, tops, and jackets for healthy lifestyle, such as yoga, running, training, and other activities. It also provides fitness-inspired accessories.
Read More - Current Price
- $308.31
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 20 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $357.13 (15.8% Upside)
#2 - Marriott International (NASDAQ:MAR)
Hotel stocks have been among the biggest beneficiaries of the revenge travel boom that’s lasted longer than many thought it would. And if you had bought $10,000 of Marriott International Inc. (NASDAQ: MAR) stock in March 2020, you’d have $17,500 today as Marriott's total return during that period was 75%.
Continuous expansion is the key to the company’s past - and likely future - growth. This includes Europe, where the company has a goal of adding 100 properties and 12,000 rooms by 2026.
Even without rate cuts, Marriott’s rock-solid balance sheet will allow the company to hit its growth targets without putting its dividend at risk. Marriott cut that dividend in 2022 but has more than made up for that with a dividend that has given investors a three-year annualized growth rate of 59% yet still has an attractive payout of around 26%. But with rate cuts likely to stimulate further travel demand, MAR stock looks like a good long-term buy.
About Marriott International
Marriott International, Inc engages in operating, franchising, and licensing hotel, residential, timeshare, and other lodging properties worldwide. It operates its properties under the JW Marriott, The Ritz-Carlton, The Luxury Collection, W Hotels, St. Regis, EDITION, Bvlgari, Marriott Hotels, Sheraton, Westin, Autograph Collection, Renaissance Hotels, Le Méridien, Delta Hotels by Marriott, Tribute Portfolio, Gaylord Hotels, Design Hotels, Marriott Executive Apartments, Apartments by Marriott Bonvoy, Courtyard by Marriott, Fairfield by Marriott, Residence Inn by Marriott, SpringHill Suites by Marriott, Four Points by Sheraton, TownePlace Suites by Marriott, Aloft Hotels, AC Hotels by Marriott, Moxy Hotels, Element Hotels, Protea Hotels by Marriott, City Express by Marriott, and St.
Read More - Current Price
- $280.18
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 13 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $259.00 (7.6% Downside)
#3 - Under Armour (NYSE:UAA)
If you have a speculative itch to scratch, Under Armour Inc. (NYSE: UAA) is worth a close look. It’s been a disastrous year for athletic apparel stocks in general. Even premium brands like Lululemon are seeing double-digit stock price declines. Under Armour stock is down 26% in 2024, and the company hopes that the return of its founder, Kevin Plank, as CEO will turn around the company’s fortunes.
The company’s financials aren’t awful, but they show the difficulties of competing in this category. As Plank has outlined, the company faces three key issues. First, its product cycle takes too long. Second, it is unable to keep popular items in stock. Third, it has lost its unique selling proposition in the face of new competitors in an ultra-competitive market.
Under Armour used to be the challenger brand, but now it’s the one being challenged. But if you believe that there may be no one better to meet that moment than the company’s founder, UAA stock may be a steal, trading at just $6.37 per share as of July 2, 2024.
About Under Armour
Under Armour, Inc, together with its subsidiaries, engages developing, marketing, and distributing performance apparel, footwear, and accessories for men, women, and youth. The company provides its apparel in compression, fitted, and loose fit types. It also offers footwear products for running, training, basketball, cleated sports, recovery, and outdoor applications.
Read More - Current Price
- $9.12
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 12 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $9.03 (0.9% Downside)
#4 - Pool Corporation (NASDAQ:POOL)
When you think about consumer discretionary stocks that could really use a rate cut, Pool Corporation (NASDAQ: POOL) is likely the kind of company you had in mind. As its name suggests, the company provides pool equipment and related products and services.
POOL stock is down more than 23% in 2024. Much of that decline has come since the company delivered a bearish outlook on new pool construction for the remainder of the year. This isn’t a new phenomenon. In its April earnings report, Pool posted its sixth consecutive quarter of year-over-year declines in revenue and earnings.
That stands to reason, as the housing market is tight. Plus, many homeowners are opting to put off a large ticket purchase until inflation and interest rates become more favorable. Also, the entire industry is experiencing a period of normalization after two years of strong demand.
That’s also, however, why there could be a bullish case for POOL stock. Although the timing of any rate cut is unclear, it will be bullish for housing and housing-adjacent stocks like POOL. And investors that buy now will add shares at POOL's 52-week low and collect a decent dividend while they wait.
About Pool
Pool Corporation distributes swimming pool supplies, equipment, and related leisure products in the United States and internationally. The company offers maintenance products, including chemicals, supplies, and pool accessories; repair and replacement parts for pool equipment, such as cleaners, filters, heaters, pumps, and lights; and building materials, such as concrete, plumbing and electrical components, functional and decorative pool surfaces, decking materials, tiles, hardscapes, and natural stones for pool installations and remodeling.
Read More - Current Price
- $360.98
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $369.11 (2.3% Upside)
#5 - Mastercraft Boat (NASDAQ:MCFT)
Mastercraft Boat Holdings Inc. (NASDAQ: MCFT) is another company that is an easy name to put on a list of consumer discretionary stocks that are begging for a rate cut. As the saying goes, the best two days of a boat owner’s life are the day they buy it and the day they sell it. That assumes, however, that there are buyers.
In the face of higher interest rates, the company’s revenue and earnings are down, and so is the MCFT stock price - it’s down 41% in the last 12 months and 21% in 2024.
To be fair, some of the decline is due to a normalization in sales after several years of abnormally high sales. But if analysts are correct, and 2024 marks a bottom for boat sales, then this is a good time to buy MCFT stock, particularly with an attractive forward P/E ratio of just over 20x.
About MasterCraft Boat
MasterCraft Boat Holdings, Inc, through its subsidiaries, designs, manufactures, and markets recreational powerboats. It operates through MasterCraft, Crest, and Aviara segments. The MasterCraft segment produces premium recreational performance sport boats primarily used for water skiing, wakeboarding, wake surfing, and general recreational boating.
Read More - Current Price
- $20.59
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $21.25 (3.2% Upside)
#6 - Electronic Arts (NASDAQ:EA)
On July 19, 2024, Electronic Arts Inc. (NASDAQ: EA) is set to release College Football 25 for PlayStation 5 and Xbox Series X/S. If you’re not a football fan, or even a sports fan, you may be wondering: so what? But gamers around the world may be taking days off from work to play. That’s because it’s the first time in more than a decade that EA has been able to release a new version of this popular title.
This is called a catalyst. And it probably wasn’t reflected in the company’s fourth quarter earnings that showed a 14% drop on the top line. That’s likely to change when the company reports earnings in early August and is likely to carry over into the following quarter as well.
Analysts seem to be catching on to this opportunity. The consensus price target for EA stock is $147.50, which is close to the stock’s all-time high. But the stock has received more bullish price target increases in the last month. The most recent as of this writing came from Stifel Nicolaus which reaffirmed its Buy rating while raising its price target from $150 to $163.
About Electronic Arts
Electronic Arts Inc develops, markets, publishes, and distributes games, content, and services for game consoles, PCs, mobile phones, and tablets worldwide. It develops and publishes games and services across various genres, such as sports, racing, first-person shooter, action, role-playing, and simulation primarily under the Battlefield, The Sims, Apex Legends, Need for Speed, and license games from others, including FIFA, Madden NFL, UFC, and Star Wars brands.
Read More - Current Price
- $166.71
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $165.37 (0.8% Downside)
#7 - Nintendo (OTCMKTS:NTDOY)
Nintendo Co. Ltd. (OTCMKTS: NTDOY) is the last on our list of consumer discretionary stocks to consider before interest rates move lower. Like Electronic Arts, Nintendo has a catalyst coming, but investors will have to be patient.
As gamers know, Nintendo is the company behind the popular Nintendo Switch console. The company has delayed the launch of the next generation Switch until 2025. That’s not going to be great for holiday sales and will likely keep revenue muted for much of the year. However, a seven-year refresh cycle is a long time, and there are likely to be many pre-orders of the device.
That said, a key reason for the delay is to ensure the company has enough product to meet demand without being subject to the scalping market, which was an issue during the launch of the Switch console in 2017.
That’s the opinion of analysts who have a $58.77 price target for NTDOY stock, a whopping 324% gain from the stock’s price on July 2, 2024. And with 11 out of 22 analysts rating the stock a Strong Buy, there’s more than enough conviction for investors to follow suit.
About Nintendo
Nintendo Co, Ltd., together with its subsidiaries, develops, manufactures, and sells home entertainment products in Japan, the Americas, Europe, and internationally. It also offers video game platforms, playing cards, Karuta, and other products; and handheld and home console hardware systems and related software.
Read More - Current Price
- $13.21
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 3 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
Now that you've identified what stocks to buy, you may be wondering when you should buy them. Timing the market is a fool's errand. However, if you pay attention to the FedWatch Tool, you'll see there's a 63.25% chance for a 25 basis points rate cut in September. If you're really bullish, you'll note that this also forecasts a 45% chance that rates may be down by 50 basis points from their current level by December.
A lot can still happen, but the takeaway remains the same. When interest rates go down, consumer discretionary stocks will go up.
That's why the time to prepare is now. To help you find consumer discretionary stocks that fit your investment style, MarketBeat offers a Stock Screener tool that allows you to sort by dividend-paying stocks, stocks that analysts favor, and more.
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