7 Consumer Stocks to Buy and Hold for Years

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

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[Editor’s note: This story was previously published in February 2019. It has since been updated and republished.]

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 keep moving forward, however slowly. 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 ones that are performing well and see how their stocks are trading as a result.

Consumer Stocks to Buy: Starbucks (SBUX)

Consumer Stocks to Buy: Starbucks (SBUX)
Source: Starbucks

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 $74, as the stock price hovers just below all-time highs and is firmly in breakout territory.

Analysts call for 6.6% sales growth this year and 7.5% in fiscal 2020. That goes alongside 11.6% earnings growth this year and 12.6% 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 haven’t reached an agreement, Starbucks hasn’t seen much of a hiccup in its long-term plans, and that should comfort long-term investors.

Chipotle (CMG)

Chipotle Stock cmg stock
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Chipotle Mexican Grill (NYSE:CMG) is back and business is boomin’. CEO Brian Niccol only took over the reins last year, 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 9% 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 10.3% 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.

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.

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

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

Nike (NKE)

Nike Stock Earnings Reaction Offers A Healthy Reset And Buying Opportunity
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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 earnings growth, revenue growth and 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 6.3% and 19.3% earnings growth this year and next, alongside roughly 7.8% revenue growth this year and 8.3% next year.

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.

Canada Goose (GOOS)

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I was flabbergasted with the most recent 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. And the stock has been fumbling along ever since.

The report revealed 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 provided this strong of an outlook, the share prices deserves to go higher, not lower. And this high-octane name can go higher if it continues to deliver.

Lululemon Athletica (LULU)

Lululemon stock lulu stock
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Heading into 2019, shares of Lululemon Athletica (NYSE:LULU) had strung together eight consecutive earnings and revenue beats. In January, LULU gave an 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. And when the report came out, it didn’t disappoint — another double beat, with earnings of $1.33 and revenue of $928.8, along with a whopping 12% gain in comparable sales

Analysts expect Lululemon to end the year with 14.5% 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 19.5% growth this year and 17.4% growth in fiscal 2020 (next year). Admittedly, this does leave LULU stock trading at about 47 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.

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 8.3% to $5.84 per share this year.

Admittedly, growth is forecast to taper off a bit, down to just 6.5% earnings growth next year. But the company’s revenue profile — 3.4% growth this year, 3% next year — is solid and guidance could always come in ahead of expectations.

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/2019/04/7-consumer-stocks-to-buy-and-hold-for-years-bgim/.

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