A variety of factors sent the market lower this week, from China’s currency devaluation to slowing consumer spending. Focusing on the latter, consumer spending in the U.S. rose by just 0.2% in June — the slowest advance in four months. In May, for instance, spending grew by 0.7%.
Despite that blip, I’m still a big fan of stocks in the consumer space. Overall, the economy and in turn consumer spending have been strengthening, making the recent weakness simply a call to quality: Only consumer stock with some sort of edge with retain shoppers’ dollars.
The consumer sector is a broad one, as shoppers shell their hard-earned money out on a variety of goods, from automobiles to apparel to accessories and everything in between. Let’s take a look at six cream-of-the-crop consumer stocks that cover just about that entire span.
6 Consumer Stocks That Won’t Slow Down: Pep Boys (PBY)
Many experts noted that the consumer spending slowdown may be temporary, and they pointed to automakers as the reason why. Earlier this week saw the industry release stronger-than-expected sales numbers, continuing the breakneck pace that would make 2015 the best year in a decade for automakers.
More specifically, over 1.5 million vehicles were sold in July — a 5.3% year-over-year increase.
The obvious way to play the auto sector’s strength is to buy shares of an actual automaker, but I prefer to stay a little further downstream for the sake of safety. Companies like O’Reilly Automotive (ORLY) and Pep Boys (PBY), for example, also rise with the lifting auto tide.
PBY stock has posted an 18% climb year-to-date, blowing away the generally sideways slither of the broader market. And in June alone, Pep Boys stock jumped more than 20%. Part of the reason for the upwards momentum: The company broke a streak of earnings losses with a handy beat in the most recent quarter.
And for the cherry on top, it’s slated for double-digit annual earnings growth long-term.
6 Consumer Stocks That Won’t Slow Down: Starbucks (SBX)
Shifting gears in the world of consumer stocks, let’s transition from cars to coffee. Another consumer favorite is Starbucks (SBUX), a pick boasting a delicious year-to-date climb of nearly 40%.
As I mentioned recently, Starbucks is in a sweet spot when it comes to consumer spending. Compared to the majority of restaurant stocks, the company’s offerings are at a much lower price point. That makes headlines about slowing consumer spending less worrisome, since snagging a cup of coffee on the way to work usually isn’t a budget-breaker (and is likely a habit).
On the flip side, when we consider just the coffee world, Starbucks has sweet price points and thus sweeter margins than a rival such as Dunkin Brands (DNKN), plus a wide range of offerings with regards to actual eats.
This has shown up in earnings, too. The most recent report boasted solid 8% same-store sales growth in the domestic market and record quarterly revenue of $4.9 billion thanks to strong 18% year-over-year growth.
6 Consumer Stocks That Won’t Slow Down: Amazon (AMZN)
Just as the consumer space can be hard to nail down, so is this next pick. Amazon (AMZN) is best described as a consumer tech play but, as you likely know, it really does a little bit of everything.
The online retailer started with eBooks, expanded to just about all e-commerce, sidestepped into content, added Amazon Prime and now has its eyes set on groceries … and that list doesn’t even cover its more recent forays into the cloud, drones and more.
Shoppers and investors can’t seem to get enough of Amazon, with shares booking a 70% gain so far this year. Because the company is so ubiquitous and is aiming to become even more so, it’s a consumer spending standout. As is the case with Starbucks, that reality is (finally) showing up on the bottom line.
Amazon is expected to post $1.60 per share in earnings this year — a number that will expand to $5.06 in 2016.
6 Consumer Stocks That Won’t Slow Down: Target (TGT)
Speaking of ubiquity, there’s still something to be said for big-box retailers. While many worried about the fate of Target (TGT) and Wal-Mart (WMT) in the wake of Amazon’s rise, both brick-and-mortar giants still fill a nice niche … and both are ramping up their online operations as well.
Target, though, has a better brand, browsing experience and reputation that Wal-Mart, but with a similarly desirable price point. This makes it steady in the face of tough times but also poised to ramp up sales when the economy is strong.
So far, that’s translated to solid 35% stock gains over the last year. What’s perhaps even more impressive is the fact that Target, despite being an entrenched and established company, is still expected to grow earnings by around 12% per year over the next half-decade.
6 Consumer Stocks That Won’t Slow Down: Disney (DIS)
That’s why another household name and relatively ubiquitous company that simply has to be on this list is Disney (DIS). It makes the cut partially because our culture and consumers love media so much, and partially because there are simply so many ways money is coming into the company.
From TV shows and movies to their accompanying amusement parks and merchandise, you can just picture a kid begging his or her parent for the latest Disney apparel — and Pops finally giving in.
Just like Target, being an established brand has hardly tarnished growth. Shares of Disney stock are up 14% so far in 2015 and 23% over the last year. Toss in thick operating margins, double-digit growth prospects and decent dividend, and there’s a lot to like.
6 Consumer Stocks That Won’t Slow Down: Ulta (ULTA)
Whether you’d like to admit it or not, we live in a pretty vain society. So while cosmetics may seem like luxury, for many they’re actually a necessity. That also puts beauty retailers in the sweet spot of downside protection and upside potential. For proof, just glance at this chart of cosmetic industry sales. There was only a slight drop during the depths of the recession, while sales have grown every other year since 2003.
That’s a pretty beautiful trend.
With that in mind, our list of strong consumer stocks isn’t complete without a pick like Ulta (ULTA). For those who aren’t familiar, Ulta is a beauty retailer that sells more than 20,000 products via 774 stores in 47 states.
A few more numbers, if those aren’t enough: Shares have soared 80% over the last year, while earnings have expanded by 36% per year over the last five years. Ulta seems to be just getting started too. On top of posting consistent earnings beats, the company is slated to grow earnings by 20% per year going forward as well.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader,Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
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