Consumers allow businesses to operate and grow. Knowing where people put their money and what industries are heating up can help you discover profitable investment opportunities.
While we all have to buy the necessities, many people have extra money lying around after buying their essentials. While some of this money gets saved, some of it will also go into discretionary purchases. These buys stimulate the economy and reward shareholders who invest in the right companies. Investors looking to diversify into consumer discretionary stocks may want to consider these three picks.
Elf Beauty (ELF)
Elf Beauty (NYSE:ELF) caters to people who want to look and feel great. The firm offers many cosmetics and beauty products, but there’s one key difference. Elf Beauty uses cruelty-free ingredients. Many cosmetic products use ingredients that require animal testing. It’s a gruesome process that Elf Beauty bypasses.
Elf Beauty has been a hit with Gen Z and has experienced tremendous revenue and net income acceleration in recent quarters. The beauty brand increased its sales by 76% year over year (YOY) in Q2 of fiscal 2024. Further, net income growth almost tripled.
Moreover, ELF is a profitable company that currently has a 51-forward P/E ratio. Not everyone may like that multiple. But investors who hold onto the stock for 5-10 years have plenty of time for that valuation to become more attractive.
So far, the long-term approach has worked well for shareholders. The stock has gained 185% over the past year and has increased by 1,723% over the past five years.
Chipotle (CMG)
Chipotle (NYSE:CMG) is a thriving fast food restaurant that has established itself as a healthier alternative to big-name fast food joints. Investors have bid up shares to a 46% gain over the past year. The stock has marched up by 328% over the past five years.
Recently, the fast food chain delivered another strong quarter. The company wrapped up Q3 2023 with an 11.3% YOY revenue increase and a 21.8% YOY growth in net income.
Further, Chipotle expanded its physical footprint with an additional 62 restaurants. “Chipotlanes” allow customers to pick up digital orders without leaving their cars. So, the company’s fast-growing segment is included in 54 of those locations. Chipotle aimed to close out 2023 with 255-285 new restaurant openings. The company will then strive to open 285-315 new restaurants this year.
Thus, investors should feel good about a company that expanded in 2023 and wants to do more next year. That’s one of the signs of a good business model.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is an e-commerce juggernaut that saves people time and offers millions of product choices. You can find almost everything that you need on Amazon. And, that distinction helped the tech conglomerate become one of the largest companies in history.
Currently, Amazon has a $1.6 trillion market cap and continues to deliver for investors. Shares are up by 59% over the past year and have gained 85% over the past five years.
While many people think of Amazon for its online marketplace, the company has evolved. Amazon Web Services (AWS)has become a large segment, and advertising has immense potential between Twitch, Amazon’s online marketplace, and other assets.
The tech giant grew sales by 13% YOY in the third quarter with an emphasis on international expansion. International sales grew by 16% YOY while the larger North American segment only generated 11% YOY growth.
Also, Amazon is an innovator in artificial intelligence, focusing on generative AI. Amazon Bedrock makes it easy for developers to build and scale generative AI applications. Therefore, this new venture can help the company generate higher returns for shareholders.
On this date of publication, Marc Guberti held a long position in ELF. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
