Despite a rough and tumble year in the markets, consumer discretionary stocks have surprisingly outperformed expectations. Since the beginning of January, the S&P 500 consumer discretionary index gained over 16%. In contrast, the benchmark exchange-traded fund SPDR S&P 500 ETF (NYSEARCA:SPY) has returned just over 9%.
What accounts for this comparatively robust showing? It’s first helpful to define what we mean by consumer discretionary stocks. Essentially, these are publicly traded companies that specialize in producing goods and services that people want, but not necessarily need. The key point here is that people will consume these offerings if they can afford it.
And lately, Americans are able to afford quite a lot. Relative to key international currencies, the dollar gained significant strength this year. Under basic economic theory, this dynamic makes imported goods cheaper. Moreover, critical commodities such as crude oil are also less expensive.
Another important factor is the labor market. Unemployment is down near multi-year lows, which is bullish for the consumer. True, I noted recently that the labor force participation rate never recovered since the 2008 financial collapse. But the flipside to that argument is that for those who have essential skills, you shouldn’t lack for (good) work.
Finally, we’re in a distinct consumer discretionary “sweet spot.” Real estate prices have exploded skyward, making many families gun shy on major purchases. However, the average worker has more than enough money to splurge on life’s smaller luxuries.
As a result, consumer discretionary stocks are enticing opportunities. Here are 20 names to consider:
Consumer Discretionary Stocks to Buy: AMC (AMC)
I typically like to start my gallery picks with conservative names, and work my way down to more speculative offerings. But on this go-around, I’m breaking with convention. I genuinely believe in AMC (NYSE:AMC) and the comeback story in the cineplex business.
You can call me both crazy and biased. The former label is more than understandable. Last year, AMC stock lost nearly 54% of market value. As for the latter, I’m an AMC shareholder and I intend to ride this recovery for the long term. If prices decline, I’ll buy on the dip.
You can read about my extensive thoughts on AMC where I covered its second-quarter earnings results here. But if I had to summarize my bullishness, it’s that the company offers an irreplaceable consumer experience.
Bring up cord-cutting all you want: nothing beats the joy and anticipation of going to the movies. Sure, it’s a relic from the past, but so are team sports. That hasn’t prevented professional sports leagues from filling stadiums. I expect the same sentiment for cineplex operators.
Consumer Discretionary Stocks to Buy: National CineMedia (NCMI)
Around the time AMC released its Q2 earnings report, I was mulling National CineMedia (NASDAQ:NCMI). I’m very familiar with the cineplex business through connections I established earlier in my career. I’m not so familiar with the movie-advertising business, which is National CineMedia’s specialty.
Long story short, I lollygagged on NCMI stock, and it went away from me. Had I bought when the idea first entered my head, I would have been up double digits in less than a month. I’ll chalk it up to a life lesson. I still believe in NCMI and its longer-term potential.
If the cineplex industry continues its recovery track, National CineMedia will likely draw increased sales and earnings growth. Previously, investors didn’t like flatlining annual revenues, and they punished NCMI stock accordingly. However, following the broader trend in consumer discretionary stocks, NCMI is due for a legitimate recovery.
Here’s the deal: When adjusted for inflation, it’s cheaper to go to the movies today than it was in 1977. If you want a great social experience for a reasonable amount of money, the cineplex remains a top option. With more people likely to cram the box office, NCMI stands to benefit tremendously.
Consumer Discretionary Stocks to Buy: Cinemark (CNK)
For all the reasons I’m bullish on AMC and National CineMedia, I’m just as optimistic for Cinemark (NYSE:CNK). Primarily known for its Century Theatres brand that it bought out more than a decade ago, CNK enjoys the same tailwinds as its rivals.
However, Cinemark distinguishes itself with more eclectic offerings. For instance, through its CineArts lineup, Cinemark appeals to sophisticated moviegoers with films that demonstrate true artistry. Listen, I love the Transformers series as much you do — okay, maybe not — but sometimes, I want a great story. CNK appeals to the largest audience possible, making it a solid cineplex investment.
The company’s financials prove that the industry turnaround is for real. After years of disappointing sales growth, CNK has really turned up the heat. In Q2, management delivered 18% year-over-year revenue growth to $889 million. It’s on pace to notably rise from last year’s sales haul.
The only knock I have against CNK is that it’s not as exciting as AMC or NCMI. Ironically, Cinemark shares lack drama, limiting its upside potential. But by the same token, it probably won’t take you to the cleaners.
Consumer Discretionary Stocks to Buy: Disney (DIS)
I know you’re probably tired of hearing about Disney (NYSE:DIS). Especially, you’re tired of hearing it from me. I’ve lost count of how many times I’ve covered the Magic Kingdom. Still, I’ll gladly jump on the horse again for three reasons.
Obviously, first it pays the bills. Second, Disney generated significant attention with its showdown with Comcast (NASDAQ:CMCSA) over Twenty-First Century Fox’s (NASDAQ:FOXA) entertainment assets. Honestly, DIS deserved the coverage. But third and most importantly, Disney is now an indomitable content powerhouse.
As I mentioned in a prior DIS write-up, the movie industry has changed dramatically. At the turn of the century, studios released films covering multiple genres profitably. Today, you have to release titles that consistently appeal to the masses. This usually means “Star Wars” and comic-book franchises.
Thanks to winning the battle for Fox, Disney will soon control virtually all of Hollywood’s big-money making franchises. You can’t ignore this leverage. While the last Star Wars-related film disappointed, don’t expect DIS to miss twice.
Beyond their ultra-attractive movie franchises, Disney is also gearing up to fight in the streaming wars. With their content library, do you really want to argue against them?
Consumer Discretionary Stocks to Buy: Lions Gate (LGF.A, LGF.B)
My movie-fanatic colleagues and I always crack jokes about Paramount Pictures consistently (and inexplicably) missing opportunities. While Paramount is today probably best known for its “Mission Impossible” franchise, they have an even bigger, but non-utilized franchise: “Friday the 13th.”
It’s almost criminal that Paramount won’t indulge horror fans with a Friday the 13th reboot. Centered around serial killer Jason Voorhees, the franchise featured the two most critical elements that make movies great: violence and sex. A third attribute of Friday the 13th is that it’s shamelessly anachronistic. It doesn’t even try to be politically correct.
At least Lions Gate (NYSE:LGF.A, NYSE:LGF.B) has a brain. Known for its edgy films, Lions Gate owns the “Saw” franchise. Lacking “intimate” content, the “Saw” series makes up for it with incredible violence. The reverse-bear trap remains one of the most terrifying elements ever concocted for film. Granted, the series became unbearably campy in later titles, but it recovered nicely in last year’s Jigsaw.
The other reason I like LGF.A and LGF.B? Horror films are typically earnings machines. They don’t cost much to produce, yet they draw a significant audience. Admittedly, “Saw” is a mediocre horror franchise, yet it still brings in the dough. Of course, this just makes Paramount’s abstinence all the more absurd.
Consumer Discretionary Stocks to Buy: United Continental (UAL)
I’m hesitant on suggesting United Continental (NYSE:UAL) as a consumer discretionary stock to buy. Not only are shares up nearly 31% YTD, UAL achieved most of those gains over the past month-and-a-half.
But if UAL stock noses down, you should consider picking some up on the cheap. For all its past troubles with customer relations, United Continental’s surge is very much justified.
Typically, most analysts focus on the airliner’s financial performance, which has improved significantly. In Q2, UAL increased top-lines sales by nearly 8% to $10.8 billion. It’s on pace to deliver more than $39 billion in revenue for 2018, finally overturning years of flatlining growth.
But in my opinion, the biggest tailwind is consumer strength. Relative to our key international partners, our currency reaches further. As a result, traveling to far-off destinations is beneficial at this juncture. Forget the term “buyer’s market”; this is an American market.
Look for consumer discretionary stocks like UAL to reap the rewards.
Consumer Discretionary Stocks to Buy: Japan Airlines (JAPSY)
During my early years, I’ve always longed to travel to Europe. When I had my first taste of independence, I jetted off to England, eventually sparking many trips across the Atlantic.
Today, I’m jaded. Aside from family or professional obligations, I’m perfectly happy to never fly to Europe again. Why? I just can’t stand the rude, inconsiderate behavior that often accompanies these flights.
On the other hand, I’ll gladly take yearly, quarterly, or even monthly flights to Japan, especially through Japan Airlines (OTCMKTS:JAPSY). The ambiance is completely unique. Rather than the noisy, chaotic environment found in other airliners, Japan Airlines usually seats business executives and well-mannered, respectful families.
Beyond my personal observations, JAPSY benefits from strong fundamental tailwinds. Primarily, the Japanese yen has devalued considerably since earlier this spring. This makes it an ideal time for Americans to visit Japan, and that’s exactly what they’re doing.
In July, Japan saw a 13.4% increase in American tourists. From January through July, 95,000 more American tourists took the trip from the year-ago period.
Given that Japan will host the next Summer Olympics in 2020, JAPSY could reap longer-term benefits.
Consumer Discretionary Stocks to Buy: Royal Caribbean Cruises (RCL)
Among consumer discretionary stocks, Royal Caribbean Cruises (NYSE:RCL) is surprisingly one of the more resilient names. According to the Cruise Lines International Association, the total number of cruise passengers has increased annually since 2009.
Now that we’re out of those awful Great Recession years, I expect further bullishness towards this sector. Industry experts peg this year’s global passenger count at 27.2 million, an increase of 5.4% over the prior year.
Better yet, RCL features overall solid financials. The company maintains strong profitability margins, while top-line growth has recently picked up steam. In Q2, Royal Caribbean generated $2.3 billion in revenue, up 6.5% from the year-ago quarter. Moreover, RCL’s net income was $466 million, an increase of 26%.
The one significant drawback is volatility. RCL stock is pedestrian at only a 1% gain YTD. But that hides the fact that shares gyrated wildly throughout 2018.
Still, I sense an opportunity. With educated individuals finding gainful employment, and employers competing on both salary and benefits, workers typically enjoy increased vacation time. That’s a net gain for RCL and the cruise industry.
Consumer Discretionary Stocks to Buy: Lindblad Expeditions (LIND)
I’ve heard some whoppers on YouTube and the internet, but one of the most persistently disseminated conspiracy theories is this: Antarctica isn’t what we think it is. Hollow-earthers believe it’s an entrance to a world inside our world. Flat-earthers believe the southernmost continent is an ice-ring that keeps the oceans’ waters from spilling over the edge.
Some folks are never happy with an explanation unless they see it with their own eyes. This is where Lindblad Expeditions (NASDAQ:LIND) comes into play. Unlike other travel-related agencies, LIND stays true to its brand. All their trips are indeed expeditions.
Gone are the typical amenities that you’ll find in a vacation cruise liner. In its place are smaller, specialized ships that can navigate the treacherous waters of the Amazon, or withstand the bitter Arctic cold. And yes, LIND is one of the few companies that offer routes to Antarctica.
So whether you believe the earth is flat or spherical, Antarctica is certainly a bucket-list destination. With a favorable environment for consumer discretionary stocks, the niche LIND stock should receive continued mainstream support.
Consumer Discretionary Stocks to Buy: Ford (F)
Ford (NYSE:F) is an American icon, so understandably, patriotic investors get salty if you go negative on F stock. I’m glad to report that I’ve received very little, if any hate towards my bearishness. That seems to be reserved for my take on Advanced Micro Devices (NASDAQ:AMD) and Under Armour (NYSE:UA, NYSE:UAA).
I concede that the negative play is unreliable for F stock. Nevertheless, bears received a boost of confidence due to Ford’s poor Q2 earnings report. The automaker beat revenue estimates, although it was down on a YOY basis. But investors really didn’t like the earnings miss, and the lowered guidance due to disappointing Asia Pacific and Europe outlook.
The markets responded quickly, although the bad news may be almost fully baked in. While international sales will naturally slow for a myriad of geopolitical and economic reasons, Americans are bolstering consumer discretionary stocks. That applies to F as well.
Despite the Q2 miss, I must give credit where it’s due. Ford is still a dominant player in key subsegments such as full-size pickup trucks. Even import guys and gals will give props to Ford in this arena. Plus, their strong free cash flow supports their generous dividend.
Consumer Discretionary Stocks to Buy: Constellation Brands (STZ)
Millennials love wine. More than two-and-a-half years ago, NBC News reported that millennials drank “almost half the wine bought in America.” Obviously, this trend suits Constellation Brands (NYSE:STZ) perfectly thanks to their extensive wine portfolio.
More importantly, all indications suggest that millennials will continue reshaping the wine industry. According to a recent New York Post article, the average American develops a taste for wine at age 29. Interestingly, though, millennials have their “awakening” at 23 years old. This compares favorably (from the vineyard’s perspective) to baby boomers, who had their awakening at 34.
The best part about STZ stock as a consumer discretionary play is Constellation’s varied businesses. In addition to wine, the company owns popular beer and spirit brands, such as Modelo, Corona, and Svedka.
Finally, STZ has a 9.9% stake in Canopy Growth (NYSE:CGC). This exposure helps feed millennials’ love for “agriculture.”
Consumer Discretionary Stocks to Buy: Williamette Valley Vineyards (WVVI)
If you want to take a truly speculative shot on the wine market, I’d look into Williamette Valley Vineyards (NASDAQ:WVVI). WVVI is about as high-risk, high-reward as you can get. With a market capitalization just shy of $40 million, by no means is Williamette Valley a sound, stable investment.
But if you can stomach the risk, the company does have some positives moving in its favor. For starters, I like the surprisingly robust balance sheet. Currently, WVVI has a cash-to-debt ratio of 1.28, which gives management some flexibility. Also, the company enjoys strong profitability and growth metrics.
Is this enough to jump onboard WVVI stock? Again, it depends on your personal risk-tolerance levels. Shares appear to have somewhat stabilized recently, although volume levels are extremely low.
Ultimately, I can’t ignore that millennials are imbibing wine a decade earlier than prior generations. That demonstrates a deep-seated appreciation for wine, which just might boost WVVI stock.
Consumer Discretionary Stocks to Buy: eBay (EBAY)
In writing about consumer discretionary stocks, I cannot avoid e-commerce. However, I just don’t want to talk about Amazon (NASDAQ:AMZN) right now. Yes, it’s the dominant name in the online-shopping sector. Indeed, I believe that it will become the greatest company ever. But I just want to give Amazon a rest.
Instead, let’s talk about eBay (NASDAQ:EBAY). In my view, eBay hasn’t received much love since the online-auctioning site spun off Paypal (NASDAQ:PYPL). Actually, it’s not just my opinion: since its introduction on July 10, 2015, PYPL has gained 168%. Over the same period, EBAY has returned less than 33%.
Moreover, EBAY took a dive since hitting a peak on Feb. 1, dropping nearly 25%. Although speculative, I think this is an ideal time to consider a contrarian trade.
Particularly, I’m looking at longer-term demographic trends. Generation Z is the first demographic that is natively online and digital. They know no other means of communicating, transacting or just plain living. Furthermore, 77% of Gen Z attain discretionary cash through freelancing, temp jobs, or earned allowances.
The company’s platform naturally fits into this all-digital mentality. While the current ugliness is concerning, I wouldn’t miss the forest for the trees.
Consumer Discretionary Stocks to Buy: Sony (SNE)
Before many of you readers were born, a Japanese company called Sony (NYSE:SNE) revolutionized the concept of personal-music consumption. Actually, check that: Sony invented the category.
Today, Gen Z assumes that Apple (NASDAQ:AAPL) first sparked the idea. Of course, Apple advanced this sphere thanks to their iPod devices, which made portable-music players truly portable. And now, everybody listens to music through their phones.
But it was Sony’s Walkman that introduced the idea that music could be enjoyed privately and conveniently wherever you go. Steve Jobs improved upon the idea, but now that he’s dead, Sony has a chance to take back the mantle.
Consider this consumer-electronics cycle. Sony dominated the 1980s and 1990s. Apple later dominated the 2000s and 2010s. I believe we’re due for a reversal now that Apple is probably running out of original ideas.
Plus, let’s look at it this way: with Apple, you’re betting that a trillion-dollar company will become a two-trillion dollar company. With SNE, you’re hoping for a $72 billion firm to jump firmly into $100 billion territory.
If anything, the math just favors SNE stock.
Consumer Discretionary Stocks to Buy: Sturm Ruger & Co. (RGR)
With an economy moving generally in the right direction, investors may want to consider one of the more discretionary of consumer discretionary stocks. Sturm Ruger & Co. (NYSE:RGR) has a cloudy reputation, for obvious reasons. Firearms manufacturers aren’t necessarily the most loved businesses in the current political environment.
Nevertheless, don’t let the naysayers fool you: shooting sports are alive and well. Between the years 2015 through 2017, shooting-sports participants averaged 9.7 million. That compares favorably to years 2006 through 2008, when the average was 7.5 million.
In addition, RGR enjoys a fundamental tailwind. According to a survey earlier this year, millennials’ opinion towards gun control don’t differ much from older generations. Which is to say that apathy is a double-edged sword. Either way, political challenges against RGR may not be as strong as previously thought.
Finally, I say don’t knock it until you’ve tried it. According to the Pew Research Center, most Americans have fired a gun at least once in their lives. Based on the fact that most gun owners own more than one firearm, it’s possible that the “gun bug” could drive RGR stock even higher.
Consumer Discretionary Stocks to Buy: Vista Outdoor (VSTO)
Vista Outdoor (NYSE:VSTO) has suffered an incredibly volatile ride in recent years, scaring off would-be buyers. I don’t blame them. Nobody likes to see their investment cut in half, only for that painful event to occur within a year later.
But I also believe that for the risk-tolerant buyer, VSTO stock looks a lot more interesting now. For starters, shares are up nearly 26% YTD. It doesn’t undo the pain that early-bird investors feel, but it’s definitely a welcome trend-reversal.
As we just discussed, the political environment isn’t especially terrible for Vista’s shooting-sports business. That’s good news for the company’s ammunition brands, which include popular, reasonably-priced tickets such as Independence, Federal, and Blazer.
Further, the only firearm company under the VSTO umbrella is Savage. Focusing exclusively on bolt-action rifles designed largely for hunting, Savage is exempt from the political witch-hunt that victimizes gun makers.
Finally, Vista offers several non-firearms-related outdoor products that align with many millennials’ interests. With consumer discretionary stocks on the rebound, don’t let political misunderstandings prevent you from considering VSTO.
Consumer Discretionary Stocks to Buy: Altria Group (MO)
To the cheers of anti-smoking advocates, Altria Group (NYSE:MO) isn’t having a great year. Since the beginning of January, MO stock has dropped more than 15%. Shares especially collapsed in the second half of April, just prior to the company’s Q1 2018 earnings report.
Why the downfall? Primarily, Americans are substantially smoking fewer cigarettes. This is a major health boon, but tobacco companies depend on those cigarette revenues. Seeing the writing on the wall, investors dumped out of MO stock.
Still, I believe this move is premature. Altria is a significant player in heat-not-burn devices. Similar to vaporizers or e-cigarettes, heat-not-burn products heat tobacco to the point of combustion, but never exceeding it. This results in a cleaner delivery while limiting the associated byproducts of combustion, such as carbon monoxide.
And though vaporizer companies are all the rage today, big tobacco firms like Altria have massive resources. If they want, they can easily upturn this budding industry. Yes, MO has seen better days, but don’t give up on it just yet.
Consumer Discretionary Stocks to Buy: Scotts Miracle-Gro (SMG)
If the legal situation here was more favorable, I’d load up my list of consumer discretionary stocks with marijuana companies. As it stands, though, the federal government still considers marijuana a Schedule I drug, which hampers the discussion.
But that doesn’t mean relatively stable and conservative investments in the green sector don’t exist. If you want exposure to both a traditional play, and take risks on marijuana, consider Scotts Miracle-Gro (NYSE:SMG). Chiefly known for its home-gardening products, SMG has increasingly focused on the recreational marijuana market.
Through its subsidiary The Hawthorne Gardening Company, SMG acquired several organizations to firm up its hydroponics and lighting-systems business. Granted, this is an indirect play on legal cannabis, but SMG enjoys several advantages over direct investments.
First, cannabis stocks are almost always wildly speculative, over-the-counter affairs. Although SMG isn’t the sexiest opportunity, it’s unlikely to implode. Second, Scotts pays out a dividend yield of 2.9%, which is very sustainable.
Consumer Discretionary Stocks to Buy: Cheesecake Factory (CAKE)
Cheesecake Factory (NASDAQ:CAKE) recently got a little more interesting. I’m mostly referring to the fact that since July 27, CAKE stock has given up 10%. Shares still look unconvincing, so speculators likely have time to consider a trade.
Moreover, if the labor market holds steady (low unemployment) and makes some gains (labor participation), CAKE becomes increasingly attractive. That’s because Cheesecake Factory offers a viable consumer-pricing opportunity. It’s not outrageously expensive, but it can also be considered a classy night out.
CAKE also offers a stable dividend yield of 2.5%. Admittedly, it’s not the most generous yield, but at least you’re receiving consistent passive income. Not only that, Cheesecake has robust financials, from a strong balance sheet to better-than-average earnings and growth metrics.
Consumer Discretionary Stocks to Buy: Wyndham Destinations (WYND)
Americans are overworked. According to employee-advocacy group Project: Time Off, more than half of us leave vacation days on the table every year. Fortunately, though, the trend is changing. Last year, 52% of workers had unused vacation days, compared to 54% in 2016 and 55% in 2015.
If we continue to see improvement in the labor market, I expect these figures to improve more dramatically. Should that happen, Wyndham Destinations (NYSE:WYND) would look like a bargain right now. The time share company is down 18% YTD.
Currently, growth is pedestrian, which is why investors have punished WYND stock. But at this rate, shares are now trading at four times trailing earnings, and nine times forward earnings. Given the economic backdrop and the strengthening greenback, the bears appear overzealous.
By no means is this a perfect opportunity. Wyndham must prove that it can drive sustainable growth. But this time, the company doesn’t have to generate all the positives on its own. American workers eager to use their vacation time, coupled with broader economic metrics, suggest a risky, but attractive contrarian investment.
As of this writing, Josh Enomoto is long AMC and SNE.