In this article, we will take a look at the 10 Best Consumer Discretionary Stocks to Buy Now. To skip our analysis of the consumer discretionary industry, you can go directly to see the 5 Best Consumer Discretionary Stocks to Buy Now.
Consumer discretionary companies manufacture and sell items that are not essential for consumers and are purchased when income is available after making essential purchases. The sector can be further divided into these major industries: automotive, consumer products, retail, wholesale & distribution, and transportation, hospitality & services. Positive and bullish sentiments towards future employment prospects and essential goods allows consumers to spend more freely on the discretionary goods and services.
The first half of 2022 has been rife with uncertainty, with rising inflation and recessionary winds keeping the major stock indices down while a damper has been put on the economy. The consumer discretionary sector is among the sectors that have been badly hurt by the current market sentiments. The rise in inflation due to supply chain constraints as well as commodity price hikes brought a bearish trend to this sector.
According to the data shared by the Fed recently, second consecutive quarter has displayed contraction in the US economy. Although the two consecutive quarters of contraction usually amount to a ‘recession’, the outlook may not be as bleak. The key takeaways from the Fed announcement should be that “rate hikes are having their intended impact” and “we are probably closer to the end of the Fed’s rate hiking cycle than the beginning”, according to a JP Morgan report.
According to McKinsey & Company’s Brian Gregg, “[d]espite recent headlines of sky-high inflation and record-breaking gas prices, consumer spending and confidence remains surprisingly strong”. Consumers are switching to private label grocery store brands and are focusing more on values. Consumer discretionary stocks benefit from the power of their brands. These sentiments further support our choice of picking stocks that have high brand value and hold market leading positions.
Another Deloitte report holds a bullish trend for the sector while discussing the economic outlook for consumer products, “The baseline outlook for 2022 is for relatively strong growth in consumer products”, and “During the pandemic, governments, businesses, and individuals undertook actions that set the stage for strong economic growth.”
ThreeRivers11 / Shutterstock.com
The Consumer Discretionary sector is on a recovery path after suffering from the pandemic for two years and the resultant supply chain disruptions. The month of July has been a complete reversal of the month of June as 11 sectors gained market value with Consumer discretionary sector also making a significant recovery, gaining 13.34% in the month, and closing 19.83% down YTD. We still believe it is a bit early to go all in because we expect the stock market to decline at least another 10% as the 10-year Treasury bond yield crosses the 3.5% threshold.
Below is the list of 10 best consumer discretionary stocks that hedge funds were piling into. The stocks picked in this article are leaders in their respective industries and domains and have strong fundamentals with revenues showing strong growth in the latest quarter. In addition, analysts are bullish on these stocks and maintain ‘Buy’ ratings with significant potential in stock price increases in the next 12 months.
Methodology
The stocks are ranked based on the number of hedge funds that currently hold positions in these stocks, out of the 895 prominent hedge funds tracked by Insider Monkey.
10. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 80
Based in Atlanta, Georgia, The Home Depot, Inc. (NYSE:HD), is the world’s largest home improvement retailer with more than 2,300 stores in the United States, Mexico, and Canada. In addition to the physical stores, the company also operates its ecommerce platform and offers more than a million products focused on home improvement for professional contractors as well as individuals undertaking DIY projects.
In August, The Home Depot, Inc. (NYSE:HD) released its financial results for the second quarter of 2022. Its net sales increased by 7% y-o-y to $43.7 billion, while its net earnings increased by 8% y-o-y to $5.2 billion, for the three months ended July 31, 2022. The normalized EPS was recorded at $5.05 per share, beating the consensus by $0.12.
The Home Depot, Inc. (NYSE:HD) declared a cash dividend of $1.90 per share for the second quarter and announced a $15 billion share repurchase program. Following the earnings release, Truist analyst Scot Ciccarelli raised the price target on its shares to $399 from $375.
As of Q2 2022, 80 of the 895 hedge funds tracked by Insider Monkey have positions in The Home Depot, Inc. (NYSE:HD), worth $5.4 billion.
Diamond Hill Capital mentioned The Home Depot, Inc. (NYSE:HD) in its Q1 2022 investor letter. Here is what the firm has to say:
“Home Depot shares underperformed as continued solid fundamental results were outweighed by concerns about the impact rising mortgage rates may have on the housing market and general inflationary pressures potentially leading to a consumer spending slowdown. We view the long-term prospects and multi-year fundamental outlook as unchanged.”
9. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 75
General Motors Company (NYSE:GM) is a leading multinational automotive company focused on manufacturing and sale of trucks, crossovers, cars and automobile parts and accessories across the globe. Major brands such as Buick, Cadillac, Chevrolet, GMC, Holden, Baojun, and Wuling fall under its wings. It has more than 110 facilities and above 4,000 dealers in the US. Based in Detroit, Michigan and sold 2.86 million vehicles in 2021.
In July, General Motors Company (NYSE:GM) released it’s the financial report for the second quarter of fiscal year 2022. Its total revenue increased by 4.7% year-on-year to $35.8 billion, while its net income declined by 41% year-on-year to $1.6 billion, for the three months ended June 30, 2022. The decline in net income mainly resulted from an increase in cost of sales. The normalized EPS was recorded at $1.14, falling short of the analysts’ estimate by $0.18.
As of Q2 2022, 75 hedge funds tracked by Insider Monkey have positions in General Motors Company (NYSE:GM), worth $3.4 billion.
Here is what Oakmark Global Fund has to say about General Motors Company (NYSE:GM) in its Q1 2022 investor letter:
“General Motors (NYSE:GM) was a detractor during the quarter, due to increased macro uncertainty, higher fuel prices, and concerns over rising input costs, which pressured the company in particular and the auto industry as a whole. While we are closely monitoring the potential impact of these dynamics, industry demand remains robust, driven by strong consumer balance sheets and pent-up demand after multiple years of constrained production. We also remain confident in GM’s ability to navigate a complex operating environment, which the company has consistently demonstrated over the past few years. Finally, the long-term picture remains bright. We believe GM is significantly undervalued, is well-positioned for the long-term transition to electric vehicles and has numerous needle-moving ancillary business opportunities (most notably Cruise, which is an industry leader in autonomous vehicle technology) that are under-appreciated.”
8. Activision Blizzard, Inc. (NASDAQ:ATVI)
Number of Hedge Fund Holders: 84
Activision Blizzard, Inc. (NASDAQ:ATVI) is one of the world’s leading video games and interactive entertainment company with operations across North America, Asia, and Europe. Its portfolio comprises of major gaming industry staples such as Call of Duty®, Skylanders®, World of Warcraft®, Overwatch®, Diablo®, Candy Crush™, and Bubble Witch™, with hundreds of millions of combined monthly active users across the globe.
In August, Activision Blizzard, Inc. (NASDAQ:ATVI) released its financial results for the second quarter of 2022. Its total revenue declined by 28% y-o-y to $1.6 billion, while its net income declined by 68% y-o-y to $280 million, for the three months ended June 30, 2022. The normalized EPS was recorded at $0.48 for the quarter, narrowly missing the consensus by $0.01.
Activision Blizzard, Inc. (NASDAQ:ATVI) entered into a merger agreement with Microsoft Corporation (NASDAQ:MSFT) in January 2022. Microsoft agreed to acquire all outstanding common shares of Activision Blizzard Inc for $95 per share in an all-cash transaction. The proposed transaction was approved by Activision’s shareholders in April and is expected to close before June 30, 2023.
Activision Blizzard, Inc. (NASDAQ:ATVI) is among the top 30 stocks based on the number of hedge funds holding its shares. As of Q2 2022, 84 of the 895 hedge funds tracked by Insider Monkey held its shares with a total value of $9.2 billion.
7. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 72
Based in Austin, Texas, Tesla, Inc. (NASDAQ:TSLA), designs, develops, manufactures, sell and lease fully electric vehicles and energy generation and storage solutions. Its current portfolio of products includes Model 3 and Model S sedans, Model Y and Model X SUVs, while upcoming products include Cybertruck, Tesla Roadster and Tesla Semi – a light commercial vehicle. In addition, the company sells battery energy storage products as well as solar energy systems. Tesla, Inc. (NASDAQ:TSLA) produced 930,422 vehicles in 2021.
In July, Tesla, Inc. (NASDAQ:TSLA) released its financial results for the second quarter of 2022. Its total sales increased by 42% y-o-y to $16.9 billion, while its net earnings increased by 93% y-o-y to $2.3 billion, for the three months ended June 30, 2022. The EPS was recorded at $2.27, beating the consensus by $0.46.
As of Q2 2022, according to the data on 895 hedge funds tracked by Insider Monkey, 72 hedge funds held shares of Tesla, Inc. (NASDAQ:TSLA), worth $7.2 billion.
Here is what GMO LLC has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2022 investor letter:
“To put the demand growth for clean energy materials into perspective, let’s look at Tesla (NASDAQ:TSLA). At its Battery Day last year, Tesla projected three terawatt hours of lithium-ion battery capacity needed in 2030 for the EVs and storage they expect to produce. To reach this target, Tesla alone would gobble up approximately 75% of the world’s current nickel production and four times the world’s current lithium production. These numbers are astounding enough, but when one considers that EVs currently represent just 15% of global nickel demand and about 45% of lithium demand and that Tesla will likely be producing only a small proportion of the world’s EVs in 2030, the implications are staggering. Clean energy materials companies will make a lot more money in the decades to come than they ever have both because they will be selling a lot more metric tons of material and because there are certain to be shortages where supply can’t keep up with the rapidly growing demand.”
6. Expedia Group, Inc. (NASDAQ:EXPE)
Number of Hedge Fund Holders: 80
Expedia Group, Inc. (NASDAQ:EXPE), is an online travel company based in Seattle, Washington. It provides travel and advertising services to its customers across the globe through multiple brands. The portfolio comprises brands including Brand Expedia, Hotels.com, Vrbo (previously HomeAway), Orbitz, Travelocity, ebookers, Wotif Group, and trivago. Gross bookings on its platforms nearly doubled to $74.4 billion in 2021 due to a post-pandemic resurgence in tourism.
Expedia Group, Inc. (NASDAQ:EXPE) released the financial results for Q2 2022 earlier this year in August. Its revenue increased by 51% y-o-y to $3.2 billion, while its net loss decreased by 39% y-o-y to $185 million, for the three months ended June 30, 2022. It reported a normalized EPS of $1.96, beating the consensus by $0.37.
As of Q2 2022, 80 of the 895 hedge funds tracked by Insider Monkey owned shares of Expedia Group, Inc. (NASDAQ:EXPE), valued at $3 billion.
Click to continue reading and see 5 Best Consumer Discretionary Stocks to Buy Now.
Suggested Articles:
- 13 Best Semiconductor Stocks To Buy Now
- 12 Best New Tech Stocks To Buy Now
- 10 Best Performing S&P 500 Stocks in 2022
Disclosure: None. 10 Best Consumer Discretionary Stocks to Buy Now is originally published on Insider Monkey.
