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Investment Opportunities

5 Best Consumer Discretionary Stocks to Buy Today

Discretionary goods and services are things people want but can live without. Think air travel, fancy clothing, entertainment and so on. Consumer discretionary stocks, then, tend to take a hit when times are tough.

These stocks are sensitive to market cycles. They can drop a lot during a recession. But they also have the potential to rebound big time. As an economic recovery begins, that is a big opportunity for investors.

Consider Starbucks (Nasdaq: SBUX) which went from around $20 per share in 2006 to below $4 in late 2008 in the height of the Great Recession. As the country came out of this recession, the stock’s share price quickly recovered, up to $30 by 2012—a tenfold increase in just four years. Though its share price would briefly dip later in 2012, it rebounded yet again and has been on an upward trend ever since.

Of course, every stock is different, and such a dramatic recovery isn’t guaranteed. So, it’s good to diversify. Here are some of the best consumer discretionary stocks as the country continues to recover from the pandemic…

Consumer Discretionary Stocks

holding extra cash from consumer discretionary stocks

  • Starbucks Corporation (Nasdaq: SBUX)
  • TJX Companies, Inc. (NYSE: TJX)
  • The Lovesac Company (Nasdaq: LOVE)
  • Ulta Beauty, Inc. (Nasdaq: ULTA)
  • Capri Holdings Limited (NYSE: CPRI)

Let’s take a look at why each of these discretionary stocks is a good buy right now.

Starbucks

Yes, Starbucks is back and a top consumer discretionary stock. The Seattle-based coffee company needs no introduction as it has over 33,000 locations worldwide. And it plans to expand its footprint to 55,000 locations by 2030—a rapid expansion for a chain that is already far-reaching.

Why is Starbucks stock a good buy right now? Unlike some consumer discretionaries, it has risen steadily and has already soared past its pre-pandemic highs. Plus, it has beat EPS projections in each of the last four quarters, by at least 10% each time.

Nearly all of its financials were up in the past two quarters. In fiscal Q4 2021, its revenue increased 31% to $8.1 billion, and its EPS increased over 300% to $1.49. Starbucks continues to expand its reach and profitability.

TJX Companies

Consumers in the U.S. may know TJX for its chain of clothing stores, TJ Maxx. But it also owns the chains Marshall’s, Home Goods, Sierra and Homesense. Its brands sell discounted items via close-out sales, order cancellations and manufacturer errors. As a result, it sells items at 20%-60% below retailers’ regular prices.

TJX is only slightly higher than its pre-pandemic level. It fellow below $40 due to COVID and has since climbed to around $67. Its market cap is around $80 billion and it has an EPS of $2.04 and a P/E ratio of close to 30. It missed EPS and revenue projections in Q4 2020 by 27% and 4.60%, respectively. However, it has beat both projections in the other three quarters going back to Q3 2021. For the quarter ending July 2021, its net income increased 467% to $786 million and its net profit margin increased 303% for a profit of 6.51%.

Lovesac

Lovesac, the furniture company that designs modular furniture called Sactionals, is the next consumer discretionary stock on this list. Lovesac’s furniture is modular, meaning it can be rearranged in an interlocking system. The company was founded in 1995 and is based in Stamford, CT.

Currently, the company’s market cap is a little north of $1 billion. It has been performing well, beating EPS and revenue projections in each of the last four quarters. Not only that, but its share price was below $5 in April 2020 but has ballooned to over $75 today. The company is still relatively small, having posted a net income of $8.45 million in fiscal Q2 2022, but that was an increase of 863% year over year. Accordingly, EPS was up 750% to $0.52 and its profit margin increased 561% to 8.25%.

Ulta Beauty

Ulta Beauty is a chain of stores selling cosmetics, makeup tools and brushes, skincare products, hair care products, fragrances and bath and body products. It was founded in 1990 and is based in Bolingbrook, Illinois. The retail chain has more than 1,200 locations across all 50 states.

The company is worth just over $20 billion with an EPS of $12.96 and a P/E ratio of 28. Its stock is slightly compared to pre-pandemic highs and it has been beating estimates for EPS and revenue nearly across the board. The only exception is Q3 2021 when it missed its revenue projection but by only 0.74%. Its year-over-year figures are staggering: net income is up 3,016% year over year to $251 million. EPS is up 3,157% to $4.56, and net profit margin is up 1,832% to 12.75%.

Capri Holdings

Capri Holdings is a multinational fashion company in the British Virgin Islands and it has offices in London and New York. (Check out these top fashion stocks as well.) The company owns the high-end brands Versace, Jimmy Choo and Michael Kors. Through its brands, it sells shoes, designer handbags, watches, jackets and coats, and more. It was founded in 1981 by Michael Kors.

Before the pandemic, its share price was around $35; it briefly dropped below $10 and is over $50 today. Its market cap is over $8 billion with an EPS of $2.22 and a P/E ratio of 25. It has beaten all EPS and revenue estimates recently except in Q3 2021 when it missed its revenue projection by 2.71%. For the quarter ending June 2021, its net income was up 222% to $219 million. Its EPS was up 217% to $1.41, and its net profit margin increased 144% year-over-year to 17.48%.

Investing Beyond Consumer Discretionary Stocks

The stocks above could continue to see gains with a strengthening economy. The best consumer discretionary stocks can amplify gains during the good times. Although, they should only be one of many strategies to build strong portfolios.

If you’re looking for even better investment opportunities, sign up for Wealthy Retirement below. It’s a free e-letter that’s packed with tips and tricks from investing experts. You’ll hear directly from Marc Lichtenfeld. He’s written a bestselling book on getting rich with dividends and helps thousands of readers every week.


About

Bob Haegele is a personal finance writer who specializes in investing and planning for retirement. His hefty student loan burden inspired him to pay off his loans, and now he’s helping others get their finances in order. When he’s not writing, he enjoys travel and live music.

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