The headlines about the failures of two banks — Silvergate (NASDAQ:SI) and SVB Financial (NASDAQ:SVB) – understandably have scared some investors. But these two financial institutions were relatively small.
Moreover, Silvergate got into trouble primarily because it focused on the doomed crypto sector. At the same time, SVB made very poor investment decisions, took on too much debt, and was hurt by the anemic IPO market. Most analysts are saying that the banking sector as a whole does not have similar problems and is, in the words of Wells Fargo, “well-capitalized.” Meanwhile, heading into a pivotal election year, Washington unsurprisingly took major steps on March 12 to prevent a major banking crisis. And, by all accounts, the labor market remains extremely strong. The services sector on which the American economy is based is also still rapidly expanding, despite the Fed’s interest-rate hikes. Given these points, long-term investors should not fear buying the best consumer discretionary stocks.
The three consumer discretionary names below are reporting great financial results, have strong, positive catalysts, and are trading at attractive valuations. Most importantly, big investors are pouring a great deal of money into them.
| Ticker | Company | Price |
| DKS | Dick’s Sporting Goods | $149.36 |
| TSCO | Tractor Supply | $229.03 |
| ULTA | Ulta Beauty | $521.92 |
Best Consumer Discretionary Stocks: Dick’s Sporting Goods (DKS)
Capitalizing on America’s increased emphasis on health in general and fitness in particular since the pandemic, Dick’s Sporting Goods (NYSE:DKS) earlier this month reported exceptionally strong fourth-quarter results, given its status as a very large, well-established retailer.
Specifically, the company’s revenue climbed 7.2% year-over-year to a record $3.6 billion, while its comparable store sales jumped 5.3% YOY. Compared with 2019, the retailer’s top line soared by 41%.
Pushed down by inflation and supply-chain issues, Dick’s earnings per share, excluding certain items, did drop 20% to $2.93. But very encouragingly, CEO Lauren Hobart expects the retailer’s “merchandise margin” to climb this year. Moreover, Hobart provided 2023 EPS guidance of $12.90-$13.80. At the midpoint of that range, Dick’s EPS would climb 11% compared with 2022.
And in a sign of tremendous confidence in its outlook, Dick’s raised its annual dividend by over 100% to $4 per share.
Dick’s forward price-earnings ratio of 12.25 is quite attractive, while the stock’s 11% rally between March 6 and March 10, on very high volume and amid a struggling stock market, indicates that the “big money” has become quite fond of the shares.
The retailer’s strong results, high dividend, and the big money’s confidence in it make it one of the best consumer discretionary stocks to buy now.
Tractor Supply (TSCO)
Tractor Supply (NASDAQ:TSCO) sells various products, including food for livestock and pets, to consumers. Ironside Research, a Seeking Alpha contributor, describes TSCO’s core customers as “the affluent rural.”
With most American farmers prospering tremendously amid high food prices, TSCO has unsurprisingly delivered great financial results over the last year.
Last quarter, for example, the company’s net sales jumped 21% versus the same period a year earlier, and its comparable store sales increased 8.6% YOY. Meanwhile, its operating income jumped 22.6% YOY to $359 million. For all of last year, its OI climbed 9.8% to $1.43 billion.
And according to Investor’s Business Daily, the highest-rated 30% of stock funds over the last three years bought a huge $2.9 billion of TSCO stock during the previous three months.
TSCO stock has an attractive forward price-earnings ratio of 21.7 times.
Ulta Beauty (ULTA)
Ulta Beauty (NASDAQ:ULTA) sells cosmetics products. With travel continuing to be extremely popular and many Americans still very eager to socialize and attend events after being unable to do so for many months during the pandemic, the demand for Ulta’s products has been huge over the last two years. And that trend should continue to be very powerful in 2023.
Last quarter, the retailer’s comparable sales soared 15.6% versus the same period a year earlier, “driven by a 13.6% increase in (the number of) transactions.” On the bottom line, its earnings per share climbed to $6.68 from $5.41. During Ulta’s fiscal 2022, its net income jumped 26%.
During the retailer’s current fiscal year, it expects its earnings per share to come in at $24.70-$25.40, up from $24.01 last year.
Speaking on Ulta’s Q4 earnings call held on March 9, CEO Dave Kimball noted that “Over the last two years, the U.S. beauty category experienced unprecedented growth,” driven by a number of factors, including new offerings, “new social media platforms, , return to work and resumed social activities, and the elevated connection between beauty and overall self-care.”
He believes that some of these drivers will ease going forward, with others persisting. Overall, Kimbell predicted that the annual growth of “the beauty category” would be around 5%. Given Ulta’s strong position in the space, I expect it to grow at an 8%-10% clip this year.
According to Investor’s Business Daily, the highest-rated 30% of stock funds over the last three years bought a hefty $278 million of ULTA stock over the last three months.
ULTA stock has an attractive forward price-earnings ratio of 21.2 times.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
