Consumer Discretionary Sector: Industries Snapshotadmin
Off-price retail giant TJX Companies has found success in apparel and home goods with a business model that’s not easily replicated online. Focusing on well-known brands and industry leaders in this sector is generally a formula for success since the best stocks have long been winners for investors. These companies should also be better able to weather a recession and endure the ongoing bear market since they have deeper pockets and brand equity to fall back on.
This elastic demand means that it can plummet very quickly in response to decreases in consumers’ incomes or increases in prices of consumer discretionary goods. The sector includes numerous companies operating in various industries, including retail, media, restaurants, consumer durables, and apparel. Consumer discretionary stock prices tend to rise and fall with the overall economy, making them cyclical stocks. The COVID-19 pandemic created unprecedented challenges for many consumer discretionary companies. But, as the economy reopens, investors have a unique opportunity in the sector.
Consumer Discretionary Industries
Examples of household durable goods include lawn and garden equipment, home and office furnishings, appliances, photographic equipment, and sporting goods. H&R Block provides tax preparation, tax advice, and planning services, while Graham Holdings is a diversified education and media company with well-known brands such as Kaplan, Inc. and The Slate Group. The car manufacturing industry is cyclical, and therefore this creates consumer discretionary meaning a fluctuating demand for auto parts, resulting in high volatility in the industry’s profitability. On top of that, many auto part manufacturers face cost variability due to changing prices of raw materials, such as copper and steel. One of the largest players in the auto part industry is Johnson Controls Inc. (JCI), which has a dominant position in the car seating, automotive interior, and auto batteries markets.
- Investors may acquire ETFs and tender them for redemption through the Fund in Creation Unit Aggregations only.
- The consumer confidence indicator can shed light on future consumption and saving behaviors of households.
- The car manufacturing industry is cyclical, and therefore this creates a fluctuating demand for auto parts, resulting in high volatility in the industry’s profitability.
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- Both consumer cyclical and consumer staple sectors have places in every portfolio.
If you’re just getting started in investing, or want to change up your platform of choice, check out our listings of the best online brokers and the best investment apps. Discretionary goods are those whose consumption is not due to a need, they are not essential or necessary, but rather they are related to the satisfaction of fulfilling a want or desire. They are usually related to leisure, fashion, luxury, gift items and cultural products, although they can also be included, depending on their special characteristics, furniture and other household products. Consumer discretionaries are important because they show the strength of the economy.
It is just one of several tools economists use to determine how the economy is doing. An investor can use economic indicators to predict if consumer discretionaries will rise or decline in value. The following indicators can also tell you a great deal about the overall state of the economy. Consumer discretionary is a term for goods and services that are non-essential products. Companies that manufacture products and provide services that consumers purchase on a discretionary basis.
For convenience and diversification purposes, you can buy a mutual fund that invests in them, such as the Vanguard Consumer Discretionary Index Fund Admiral Shares. Additionally, you can purchase an exchange-traded fund that follows the sector, such as the Consumer Discretionary Select Sector SPDR® Fund. The term is derived from the fact that the products are generally purchased by consumers, not businesses, and the fact that product sales (and the related stock prices) move in cycles. Conversely, consumer staples stocks can be more resilient to changes in the business cycle since they provide essential items like food and beverages. Companies like Procter & Gamble (PG), Coca-Cola (KO), and Hershey (HSY) belong to this group.
Investing in Consumer Discretionaries
The services segment includes hotels, restaurants and other leisure facilities, media production and services, and consumer retailing and services. POLL is a famous department store that offers a variety of essential and non-essential products. Nevertheless, almost 50% of its inventories are consumer discretionary goods. Its sales are highly affected by economic cycles and performance since consumers buy these discretionary products when they feel financially confident. If they are worried about their income or the future of the economy, on the other hand, consumption will usually decline. When an economy is growing, it is usually expected that consumers will have more disposable income to spend on discretionary items.
What are consumer discretionary companies?
Companies that manufacture products and provide services that consumers purchase on a discretionary basis. Examples: Apparel, textiles (Nike, Inc.). Food service/lodging (McDonald's Corp., Marriott International, Inc.). Household furniture, appliances (Williams-Sonoma, Inc., Whirlpool Corp.).
Unlike consumer staples stocks, which are companies that make products people need regardless of their preferences or economic well being, there is highly elastic demand for consumer discretionary goods. That means that more expensive goods are easily replaced by less expensive ones—or simply don’t need to be purchased at all. Whether they manufacture cars, design luxury goods or make fast food, consumer discretionary stocks profit from the full range of consumer goods and services. When you invest in consumer discretionary stocks, you’re buying companies that command strong brand loyalty among both their customers and investors.
Internet and Catalog Retail
When it comes to consumer discretionary stocks, look no further than our Trade of the Day e-letter. Sign up today and start making smarter, more profitable investments. When the economy shrinks, people are unlikely to spend their money on non-essentials. This means they have discretionary income to spend on non-essential items.
- Last week, for example, Lululemon reported that its 4Q same-store sales increased by 27% y/y and attributed much of its success to unaided brand awareness.
- It includes goods and services that people spend money on when they have a little extra cash available, such as travel, going out to restaurants, or fashion and jewelry.
- In contrast, those products that are necessities of life such as food, drugs, medical supplies, hygiene or personal care products, often classified as consumer staple.
- Leisure goods include various camping equipment, toys, all-terrain vehicles, and golf carts.
Investors also like McDonald’s for its consistent dividend payments. It has increased payments to shareholders each year since the mid-1970s, making the company a Dividend Aristocrat. With a payout ratio of around 60% of earnings, McDonald’s can comfortably maintain its dividend. The company also owns much of the real estate that its franchised restaurants occupy, allowing it to collect rent while franchisees do the hard work of running restaurants. Companies involved in the exploration and production of energy products, such as oil, natural gas, and coal. One example of a company in the distributor industry is LKQ Corporation (LKQ), which is a distributor of vehicle replacement parts and components used in car repair and maintenance.
By 2021, Nike had grown to more than 1,000 retail outlets worldwide, with sales in 170 countries. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable. The median of those values is identified and posted on each business day. The weighted harmonic average of current share price divided by the forecasted one year earnings per share for each security in the fund.
Is Nike a consumer discretionary stock?
Nike (NKE Stock)
Known for its innovative designs and prominent sponsorship deals with athletes, Nike's ability to create and market high-demand products makes it a notable player in the consumer discretionary sector.