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Companies in the consumer discretionary sector sell goods and services that are considered non-essential, such as appliances, cars, and entertainment. Prominent examples include Home Depot Inc. (HD), McDonald’s Corp. (MCD), and Nike Inc. (NKE). Consumer discretionary companies tend to be more sensitive to the overall business cycle because consumers are more likely to reduce or postpone their discretionary purchases when times are tough. By contrast, companies in the consumer staples sector focus on essential items such as food and beverages.
Consumer discretionary stocks, as represented by the Consumer Discretionary Select Sector SPDR ETF (XLY), have significantly outperformed the broader market, providing investors with a total return of 31.0% compared to the Russell 1000’s total return of 21.1% over the past 12 months. These performance figures and all data throughout are as of February 18.
Here are the top 3 consumer discretionary stocks with the best value, the fastest earnings growth, and the most momentum.
Best Value Consumer Discretionary Stocks
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 you’re paying less for each dollar of profit generated.
- Qurate Retail Inc.: Qurate Retail is an e-commerce service provider. The company partners with television networks and e-commerce sites, social media, mobile applications, and similar outlets to provide video and digital commerce services worldwide. Qurate operates brands including QVC, HSN, zulily, and Frontgate, among others. On February 18, the company announced that the board had declared a quarterly cash dividend of $2.00 per share of 8.0% Series A Cumulative Redeemable Preferred Stock. The dividend is payable on March 15 to shareholders of record as of March 1.
- eBay Inc.: eBay is a global e-commerce company that connects buyers and sellers from different countries throughout the world. The company offers marketplaces for online auctions and classified ads. eBay reported a 28.3% year-over-year (YOY) increase in net revenue and a 12.1% YOY increase in net income for Q4 2020. The company’s advertising revenue was more than $1 billion for 2020, reaching a new milestone.
- PulteGroup Inc.: PulteGroup builds, develops, and sells homes and residential land. The company also develops active adult communities. PulteGroup provides mortgage financing and related services to home buyers in the U.S. and Puerto Rico.
Fastest Growing Consumer Discretionary Stocks
These are the consumer discretionary stocks with the highest YOY earnings per share (EPS) growth the most recent quarter. Rising earnings show that a company’s business is growing and is generating more money that it can reinvest or return to shareholders.
- Mattel Inc.: Mattel designs, produces and markets children’s toys and consumer products, including its Barbie, Hot Wheels and American Girl franchises. . For Q4 2020, Mattel reported net sales growth of 10.3% YOY and net income of $130.5 million versus $200,000 for Q4 2019. The company attributed the performance to the quality and breadth of its product offerings, a highly efficient supply chain and effective demand creation in collaboration with its retail partners.
- Genuine Parts Co.: Genuine Parts is a distributor of automobile and industrial replacement parts, office products, and various electrical materials. The company provides service to the U.S., Canada, and Mexico. Genuine Parts reported Q4 2020 results on February 17. Net income from continuing operations climbed by 117.2% despite a 0.7% YOY decline in sales. The company said that strong growth in Australasia helped to fuel the performance.
- Etsy Inc.: Etsy is an e-commerce company offering handmade and vintage items as well as art, supplies, clothing, housewares, paper goods, and related products. The company caters to customers in the U.S.
Consumer Discretionary Stocks with the Most Momentum
These are the consumer discretionary stocks that had the highest total return over the last 12 months.
|Consumer Discretionary Stocks with the Most Momentum|
|Price ($)||Market Cap ($B)||12-Month Trailing Total Return (%)|
|Peloton Interactive Inc. (PTON)||138.45||40.8||411.3|
|Tesla Inc. (TSLA)||787.38||755.8||358.6|
|Etsy Inc. (ETSY)||220.82||27.8||314.1|
|Consumer Discretionary Select Sector SPDR ETF (XLY)||N/A||N/A||31.0|
- Peloton Interactive Inc.: Peloton Interactive sells workout bikes for indoor use and other recreational services and products. The company caters to customers in the U.S. Peloton’s revenue increased by 128.4% YOY for it Q2 FY 2021 ended December 31, 2020, and it posted net income of $63.6 million versus net loss of $55.4 million for Q2 FY 2020. During the quarter, total memberships grew to 4.4 million, with digital subscriptions climbing by nearly 6-fold YOY.
- Tesla Inc.: Tesla mainly designs, builds, and sells electric vehicles and electric vehicle powertrain parts. Tesla sells vehicles directly to consumers. In 2020, Tesla became the world’s largest automaker by market value.
- Etsy Inc.: See company description above.
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