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7 Consumer Stocks to Buy and Hold for Years

Here are some of the market's top consumer stocks to watch

By Bret Kenwell, InvestorPlace Contributor

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The market has been in full-on rebound mode ever since the Federal Reserve backed down from its aggressive rate-hiking ways in December. It helps that the trade talks between the U.S. and China are reportedly going well. That has left a whole host of industries and sectors trading higher, consumer stocks included.

At the end of the day, the economy is built around the consumer. Consumers buy food, clothes, electronics, houses, vehicles and a whole lot more. To buy these products — some luxuries, some necessities — these consumers go to work, creating productivity (and ultimately profit) for companies and corporations. Those corporations built products for some companies and pay for services from others. It’s an endless loop of commerce plowing dollars all around the world.

Because the economy continues to do well and the labor market is so strong, consumer spending remains strong too. As such, a number of consumer stocks are doing quite well at the moment. Let’s take a look at the ones that are outperforming and see how their stocks are trading as a result.

Consumer Stocks to Buy: Starbucks (SBUX)

Consumer Stocks to Buy: Starbucks (SBUX)

There were a few years where Starbucks (NASDAQ:SBUX) was becoming a difficult investment to own. Same-store sales results were so-so, management kept snipping (although not slashing) their outlook and its stock price was stuck in a major rut.

The only thing that kept me really invested in this name was the company’s ability to still generate record earnings and revenue each quarter, raise its dividend by double-digit percentage points and maintain very healthy cash flow. Ultimately, Starbucks’ valuation was the culprit, as a lower valuation was required for its lower rate of growth.

It took a few years of sideways action for that equilibrium to be achieved, but it finally happened. After plunging last summer, SBUX has been on fire. Shares have soared from $47 to more than $71, as the stock price hovers just below all-time highs and is firmly in breakout territory.

Analysts call for 6.4% sales growth this year and 7.8% in fiscal 2020. That goes alongside 11.6% earnings growth this year and 12.2% growth next year. Starbucks has built a successful cash cow in the U.S. and will rely on China for its future growth. So much so that the company is building roughly 500 locations a year in the country. While trade talks have been on the rocks (although improving), Starbucks hasn’t seen much of a hiccup in its long-term plans and that should comfort long-term investors.

Consumer Stocks to Buy #2: Chipotle (CMG)

Chipotle (CMG)

Chipotle Mexican Grill (NYSE:CMG) is back and business is boomin’. CEO Brian Niccol took over the reins less than a year ago, but he’s implementing the right growth measures he learned while he was at Yum! Brands (NYSE:YUM) and Taco Bell.

Consumers are finally done talking about norovirus and the other food-borne issues that plagued Chipotle in years’ past. Of course, the company is one breakout from jeopardizing all of its hard work to recover customer trust, but it’s clear sailing otherwise.

The company hammered fourth-quarter earnings expectations, and should it maintain momentum, CMG is setting up for a big 2019. Analysts expect just 8.8% revenue growth this year, but are calling for a big boost in margin expansion with 35.7% earnings growth. Sheesh! Even better though, estimates for 2020 are similar, at 10.2% and 26.2%, respectively.

Again, short of CMG going through another outbreak, its growth profile and profitability are set to expand dramatically. This will boost the company’s free cash flow, allowing for faster expansion and growth. Finally, the company doesn’t carry any long-term debt on its balance sheet.

Consumer Stocks to Buy #3: Home Depot (HD)

Home Depot (HD)

When the economy is going strong, the housing market usually is too. When that’s the case, Home Depot (NYSE:HD) is a big winner.

The home improvement retailer benefits from a strong housing market, as well as a stable one. Not only does a new kitchen or bathroom improve living quality and happiness, but it also increases home value. Why someone upgrades their bathroom or kitchen varies — renovating for themselves, prepping to sell, flipping a house, etc. — but the reason doesn’t really matter. At least, it doesn’t matter to Home Depot.

What matters is that consumers are renovating and if the company’s past results are any indication, consumers are doing plenty of it. Home Depot easily beat expectations in November, and while it missed on Q4 numbers this week, those numbers still showed plenty of growth.

Also, while many do-it-yourselfers likely received new drills and table saws over the holidays, many gift purchases came from other industries. Interest rates also increased in December and while the Fed is clearly on hold now, the housing market has been bumpy over the past few months, likely as a result. That could give us a great short-term opportunity in HD on this post-earnings dip.

Ultimately, the spring season is like the company’s holiday period, making the short-term pullback even more attractive. Consumers will be out working on their yard, doing spring clean-ups and embarking on new household projects.

The bottom line on HD is simple: While the economy and labor markets are strong,  Home Depot’s business should be too.

Consumer Stocks to Buy #4: Nike (NKE)

Nike (NKE)

Almost too ironically, Nike (NYSE:NKE) suffered a shoe gaff right as the stock was trading up to its prior highs. When Zion Williamson, a star player at Duke, saw his shoe literally blow out from under him just seconds into a game against North Carolina, Nike stock took a tumble.

If we get more of a tumble from this singular incident, it could lead to an excellent buying opportunity.

Like Starbucks, Nike’s double-digit earnings growth, high-single-digit revenue growth and double-digit annual dividend growth makes it a Future Blue Chip holding for us. Given the current outlook, we feel confident that Nike will continue its growing ways. Analysts expects 11.3% and 18% earnings growth this year and next, alongside roughly 7.8% revenue growth in both years.

Margins continue to expand as Nike continues to grow its direct-to-consumer business. As it relies less on middlemen to sell its products, Nike should continue to benefit from this concept for years to come.

Consumer Stocks to Buy #5: Canada Goose (GOOS)

Canada Goose (GOOS)

In our daily Top Stocks to Trade column, I was flabbergasted with the post-earnings reaction in Canada Goose (NYSE:GOOS). Get a load of these numbers and explain why it was justified for GOOS stock to fall almost 17% in a single session:

Revenue of about C$400 million, up more than 50% year-over-year and more than C$132 million ahead of estimates — a beat of almost 50%! — and GAAP earnings of 93 cents per share Canadian, 32 cents or 52.5% ahead of expectations. But wait, there’s more. Management guided for a strong fiscal 2019, calling for mid-to-high 30% revenue growth and mid-to-high 40% earnings growth. Analysts were looking for “just” 21% and 23% growth, respectively.

When GOOS crushed estimates last quarter and then provides this strong of an outlook, the share prices deserves to go higher, not lower. It’s no wonder the stock has recovered some of its post-earnings losses, but this high-octane name can go higher if it continues to deliver.

Consumer Stocks to Buy #6: Lululemon Athletica (LULU)

Lululemon Athletica (LULU)

Shares of Lululemon Athletica (NYSE:LULU) continue to grind higher, as LULU has now strung together eight consecutive earnings and revenue beats. When reporting its Q3 results back in December, sales grew more than 20% year-over-year. But in January, we got another update on the business.

Management said that holiday sales were strong, with Q4 comp-store sales growing in the mid-to-high teens. Guidance for the quarter also came in ahead of expectations. Lululemon won’t report for about another month, but there is still plenty to like about the name, particularly as growth is above consensus expectations.

Analysts expect Lululemon to end the year with 23.4% revenue growth and follow it up with almost 14% growth in the next year. Momentum is going strong — as evidenced by Nike and Under Armour (NYSE:UAA) as well — and that bodes well for Lululemon’s business going forward.

On the earnings front, estimates call for roughly 45% growth this year and 17% growth in fiscal 2020 (next year). Admittedly, this does leave LULU stock trading at about 40 times this year’s earnings. That’s expensive and not unlike CMG. But if these stocks continue to push higher and can maintain their current trajectory, the share prices will push higher too.

We could see a scenario where LULU stock follows its range higher (black lines) and also challenges its 52-week highs near $165.

Consumer Stocks to Buy #7: Target (TGT)

Target (TGT)

Investors have been leery to put money to work in physical retailers, but Target (NYSE:TGT) should be an exception here. The stock has a low valuation, good yield and solid growth. Plus, it’s one of the few big names that are able to holds its own against larger players like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT).

Target’s e-commerce initiatives have been paying off, while its brick-and-mortar remodels have helped drive traffic through its doors. As such, the company is looking at growing earnings 14.6% to $5.40 per share this year. Should it achieve in-line results, that values Target stock at just 13.5 times earnings.

Admittedly, growth is forecast to taper off a bit, down to just 4.1% earnings growth next year. But the company’s revenue profile — 4.9% growth this year, 3.1% next year — is solid and guidance could always come in ahead of expectations. After all, momentum is strong right now, as recently proven by Walmart’s quarterly results.

Throw in a 3.5% dividend yield and Target looks worthy of consideration.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long SBUX and AMZN. 


Article printed from InvestorPlace Media, https://investorplace.com/2019/02/7-consumer-stocks-to-buy-and-hold-for-years-bgim/.

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