As the second quarter earnings season ends, a recurring theme for many companies that rely on the discretionary income of consumers is the health (or lack thereof) of the consumer. This is particularly noticeable to investors in the performance of consumer discretionary stocks.
These companies are especially sensitive to price pressures. In 2021 and 2022, they could pass along much of their producer prices to the consumer. But in 2023, and particularly in 2024, consumers have started to pull back on these more expensive “nice to have" purchases. That's reflected in weak guidance, which has some of these stocks heading toward 52-week lows.
This is where the opportunity lies for opportunistic investors. The Federal Reserve has all but confirmed that it will lower interest rates at its September 2024 meeting. While it may take some time for the effects of that cut to reach the consumer, quality consumer discretionary stocks that are trading at a discount are likely to be among the strongest performers. Here are seven names to consider.
Quick Links
- Amazon
- Home Depot
- Toyota Motor
- Yeti
- Marriott International
- McDonald’s
- Lululemon
#1 - Amazon (NASDAQ:AMZN)
Amazon.com, Inc. (NASDAQ: AMZN) is a multifaceted conglomerate best known to many consumers for its e-commerce business. That may not be the reason that Cathie Woods’ Ark fund is buying AMZN stock — that would be its Amazon Web Services (AWS) business, which ties in the company’s positioning around artificial intelligence (AI). But it’s the consumer-facing part of the business that’s likely to outperform if consumers feel they have more purchasing power.
AMZN stock is down about 12.5% from its 52-week high reached this summer. However, it’s important to note that the stock is about 10% after a post-earnings pullback of around 15%. At its current price, it’s also at a key area of resistance around $178.
The Amazon.com analyst forecasts on MarketBeat show bullish sentiment with a consensus price target of $222.49, which would provide a 24.75% upside. The next catalyst isn’t expected until the company reports earnings in October, which means a volatile September could provide an ideal entry point.
About Amazon.com
Amazon.com, Inc engages in the retail sale of consumer products, advertising, and subscriptions service through online and physical stores in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS). It also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Echo, Ring, Blink, and eero; and develops and produces media content.
Read More - Current Price
- $186.43
- Consensus Rating
- Buy
- Ratings Breakdown
- 41 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $222.49 (19.3% Upside)
#2 - Home Depot (NYSE:HD)
Home Depot (NYSE: HD) has delivered a total return of 1,500% to investors over the last 20 years. That’s evidence of the company’s positioning in the critical home improvement market. Home Depot and Lowe’s Companies Inc. (NYSE: LOW) are the two largest names in the space and benefit from economies of scale.
The stock is up about 4.5% in 2024 largely due to earnings that reflect the weakness in the housing market which is at the core of the company’s business. But this continues to be a company well-positioned to rebound when the housing market recovers — as it is expected to do when interest rates move lower.
At 24x forward earnings, HD stock is slightly above the sector average. However, an increase in demand could send earnings much higher. That would raise analysts' targets, which currently show just a 5.4% upside. Plus, investors collect a dividend with a yield of 2.45% while they hold the stock.
About Home Depot
The Home Depot, Inc operates as a home improvement retailer in the United States and internationally. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products. The company also offers installation services for flooring, water heaters, bath, garage doors, cabinets, cabinet makeovers, countertops, sheds, furnaces and central air systems, and windows.
Read More - Current Price
- $384.13
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $389.04 (1.3% Upside)
#3 - Toyota Motor (NYSE:TM)
In a sector that’s been hit particularly hard by rising interest rates, Toyota Motor Corporation (NYSE: TM) stands out as being one of the “least bad” options. Toyota stock is down just 4% in 2024 but is starting to recover from a 15% decline after the company reported earnings for the first quarter of its 2025 fiscal year.
The bullish argument for a swift recovery for Toyota Motors is its embrace of hybrid vehicles. They’ve become the practical alternative for environmentally conscious consumers with practical concerns about owning an electric vehicle. The company’s electric vehicle sales, including battery electric vehicles (BEVs), is approximately 37%.
As further evidence of Toyota’s commitment to hybrid vehicles, it is cutting its production estimates for BEVs in 2026 by 33%. Over the long run, BEVs may be the way to go, but when the economy begins to recover in 2025, Toyota’s commitment to hybrid vehicles is likely to pay off for investors.
About Toyota Motor
Toyota Motor Corporation designs, manufactures, assembles, and sells passenger vehicles, minivans and commercial vehicles, and related parts and accessories in Japan, North America, Europe, Asia, Central and South America, Oceania, Africa, and the Middle East. It operates in Automotive, Financial Services, and All Other segments.
Read More - Current Price
- $176.78
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - Yeti (NYSE:YETI)
Yeti Holdings Inc. (NYSE: YETI) may be a textbook example of a consumer discretionary stock ready to pop on improved consumer sentiment. YETI stock is down 30% in 2024 and 24% in the last 12 months. But most of that is due to expectations of what’s to come. That’s because the company’s most recent two quarters show year-over-year revenue and earnings growth.
It could be that investors believe YETI stock was highly overvalued when it was trading for over $54 a share at the end of 2023. But the sell-off seems overdone. The company appeals to the premium consumer who is still showing purchasing power. To tap into that purchasing power, the company recently announced a licensing agreement with the National Football League (NFL).
That would suggest a disconnect between the YETI stock price and its future revenue and earnings outlook. In the 30 days ending September 9, 2024, YETI stock is down another 12%. But that makes the 29% upside of the Yeti analyst forecasts on MarketBeat that much more appealing.
About YETI
YETI Holdings, Inc designs, retails, and distributes products for the outdoor and recreation market under the YETI brand. It offers coolers and equipment, including hard and soft coolers, cargo, bags, outdoor living, and associated accessories, as well as backpacks, duffel bags, luggage, packing cubes, carryalls, camp chairs, blankets, dog beds, dog bowls, and gear cases under the LoadOut, Panga, Crossroads, Camino, Hondo Base, Trailhead, Lowlands, Boomer, and SideKick Dry brands.
Read More - Current Price
- $39.06
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $46.43 (18.9% Upside)
#5 - Marriott International (NASDAQ:MAR)
Marriott International Inc. (NASDAQ: MAR) has been one of the best-performing travel stocks since 2020. In the last five years, MAR stock has delivered a total return of over 81% to investors. And despite difficult comparisons to 2023, the company has delivered year-over-year gains in revenue and earnings in the first two quarters of 2024.
So, investors have to ask themselves: Is the nearly 15% pullback in MAR stock since the company’s last earnings report a buying opportunity as interest rates get lower and demand will likely increase?
That dip has turned MAR stock negative for the year. And with the stock only having about 9% upside, Marriott International analyst forecasts on MarketBeat suggest caution. Plus, Marriott stock is trading at around 24x forward earnings, which is more expensive than the sector average.
However, analysts are projecting 13% earnings growth in the next 12 months. And investors are getting a dividend with an annualized three-year growth rate of 59%.
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
- $238.74
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 12 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $247.33 (3.6% Upside)
#6 - McDonald’s (NYSE:MCD)
McDonald’s Corp. (NYSE: MCD) stock is surprisingly up more than 14% after the company delivered a poor earnings report. The headline numbers were bad enough, but the company missed on same-store sales for the first time since 2020. And you’d have to go back much further than that to find the last time that happened before a global pandemic.
That just shows you how far MCD stock had sold off before the earnings report. And with many investors looking for safety, McDonald’s is a solid choice. While company’s dividend yield of 2.29% may not turn heads, it has a 48-year streak of increasing that dividend, which makes it about as safe as you can get.
When companies like McDonald’s say they are noticing weakening consumer demand, it’s not something to ignore. At the same time, before 2020, McDonald’s was investing in digital technology, including AI, to improve efficiency in its stores. That may start to be reflected in the company’s earnings as the economy improves.
About McDonald's
McDonald's Corporation operates and franchises restaurants under the McDonald's brand in the United States and internationally. It offers food and beverages, including hamburgers and cheeseburgers, various chicken sandwiches, fries, shakes, desserts, sundaes, cookies, pies, soft drinks, coffee, and other beverages; and full or limited breakfast, as well as sells various other products during limited-time promotions.
Read More - Current Price
- $292.02
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 19 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $306.11 (4.8% Upside)
#7 - Lululemon (NASDAQ:LULU)
Lululemon Athletica Inc. (NASDAQ: LULU) has been experiencing strong volatility in the last two years. The first pullback in late 2021 came after consumers transitioned from buying stuff to buying experiences. This latest pullback, which started at the beginning of 2024, is more concerning. Yes, the consumer is weakening, but the company is also facing more competition from companies that some believe are more innovative than the Lululemon brand.
The company is still posting year-over-year growth on the top and bottom lines. However, that growth is slowing significantly, which may have investors questioning whether this is a solid entry point.
The answer may come from analysts’ forecasts. While recent price targets are moving lower, the consensus target of $354.94 is still a 44% increase from the current price. With interest rate cuts expected before the all-important holiday season, it may be an interesting time to get into LULU stock.
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
- $270.20
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 21 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $354.94 (31.4% Upside)
One benefit of investing in consumer discretionary stocks is that you have many options. This wide-ranging sector includes companies in industries such as retail, automotive, durable goods, and travel.
These are also referred to as cyclical stocks. That means they tend to move up and down in tandem with the economy. And the strongest gains typically come when the economy reverses course.
If owning individual stocks isn't your thing, there are many mutual funds and exchange-traded funds (ETFs) that focus on consumer discretionary stocks. One of the most popular choices is the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY). In fact, that fund includes five of the stocks mentioned in this presentation.
MarketBeat provides a range of tools to help you find and track stocks of interest in any sector. One of these tools is our stock lists in which you can find a list of the 50 largest consumer discretionary stocks at any given moment.
More Investing Slideshows:
