13 Best Consumer Discretionary Stocks To Buy

Published on March 20, 2023 at 2:33 pm by Hamna Asim in Hedge Funds, News

In this article, we discuss 13 best consumer discretionary stocks to buy. If you want to see more stocks in this selection, check out 5 Best Consumer Discretionary Stocks To Buy.

If inflation persists or the US economy enters a recession, consumers may have to significantly reduce their spending on non-essential items, which would negatively impact the earnings of companies in the consumer discretionary sector, such as clothing retailers, luxury brands, and travel firms. However, if inflation eases and the Federal Reserve successfully manages a gentle economic slowdown, these stocks could potentially lead a rebound in the markets. The consumer discretionary sector has already been heavily discounted due to the prevailing pessimism, which could create attractive investment prospects.

The performance of different sectors in 2023 is expected to be heavily influenced by macroeconomic factors. Investors may react positively to a decrease in inflation and the end of the Fed’s rate-hike cycle, but the opposite could prolong uncertainty. The supply and demand balance will also be significant, as frequent price promotions may have a detrimental impact on retailers’ profit margins. Nevertheless, consumers with higher incomes, who have more savings and spend a lower proportion of their income on basic living expenses like utilities, may continue to have strong discretionary spending. Some of the best consumer discretionary stocks to buy include Booking Holdings Inc. (NASDAQ:BKNG), Starbucks Corporation (NASDAQ:SBUX), and McDonald’s Corporation (NYSE:MCD).

Despite reports of job cuts in the news, overall employment is still increasing. Although the number of people filing for unemployment benefits remains low, the effects of the layoffs will eventually become evident, resulting in a decline in total wages and salaries paid. Nevertheless, the impact of this downturn will be postponed due to past savings. In 2020 and 2021, the majority of the stimulus checks were saved, and higher-than-normal savings rates were also due to more generous unemployment insurance payouts and rising wage rates. Despite some uncertainty as the year progresses, the larger economic trends suggest a positive outlook for consumer spending in 2023. However, by 2024, consumers will have depleted their current earnings and savings, resulting in a significant decrease in discretionary spending. Businesses that sell to consumers should not prematurely reduce their inventory levels. Maintaining sufficient inventory is essential to capitalize on available sales opportunities.

Our Methodology

For this article, we selected consumer discretionary stocks such as furniture companies, travel firms, home appliances providers, fitness-related firms, casinos, and restaurants based on overall hedge fund sentiment. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the fourth quarter of 2022. The list is arranged in ascending order of the number of hedge fund holders in each firm.

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Best Consumer Discretionary Stocks To Buy

13. Whirlpool Corporation (NYSE:WHR)

Number of Hedge Fund Holders: 24

Whirlpool Corporation (NYSE:WHR) manufactures and sells home appliances in North America, Europe, the Middle East, Africa, Latin America, and Asia. The primary items manufactured by the company include fridges, freezers, ice machines, commercial laundry products, and dishwashers along with their accompanying accessories. Whirlpool Corporation (NYSE:WHR) paid a $1.75 per share quarterly dividend to shareholders on March 15.

On February 2, Daniel Oppenheim, an analyst at Credit Suisse, increased the company’s price target on Whirlpool Corporation (NYSE:WHR) from $140 to $150, while maintaining a Neutral rating on the shares. Credit Suisse has revised its estimates for 2023 and 2024 to $15.30 and $16.30, respectively, after the firm’s initial note on the company’s Q4 results. The 2023 estimate is slightly lower than management’s guidance due to Credit Suisse’s more conservative outlook on housing turnover, which is a major factor in appliance sales, through 2023.

According to Insider Monkey’s fourth quarter database, 24 hedge funds were bullish on Whirlpool Corporation (NYSE:WHR), with collective stakes worth $842.7 million. Edgar Wachenheim’s Greenhaven Associates is the biggest stakeholder of the company, with 2.70 million shares worth $383.15 million.

Like Booking Holdings Inc. (NASDAQ:BKNG), Starbucks Corporation (NASDAQ:SBUX), and McDonald’s Corporation (NYSE:MCD), Whirlpool Corporation (NYSE:WHR) is one of the best consumer discretionary stocks to invest in.

12. Planet Fitness, Inc. (NYSE:PLNT)

Number of Hedge Fund Holders: 32

Planet Fitness, Inc. (NYSE:PLNT) franchises and operates fitness centers under the Planet Fitness brand. The company has three divisions – Franchise, Corporate-Owned Stores, and Equipment. It is one of the best consumer discretionary stocks to invest in. On February 23, Planet Fitness, Inc. (NYSE:PLNT) reported a Q4 non-GAAP EPS of $0.53 and a revenue of $281.3 million, outperforming Wall Street estimates by $0.06 and $9.82 million, respectively. In 2023, the company expects revenue to increase by 13% to 14% as compared to 2022, and earnings per share to increase by 33% to 36%.

On February 27, Max Rakhlenko, an analyst at Cowen, increased the company’s price target on Planet Fitness, Inc. (NYSE:PLNT) from $90 to $92 and maintained an Outperform rating on the shares. The analyst noted that the company ended Q4 with positive momentum, and he anticipates robust growth in member numbers for Q1. However, the analyst also mentioned that placements fell short of expectations, and Cowen is keeping a close eye on the health of franchisees.

According to Insider Monkey’s fourth quarter database, 32 hedge funds were long Planet Fitness, Inc. (NYSE:PLNT), compared to 39 funds in the prior quarter. Karthik Sarma’s SRS Investment Management is the largest stakeholder of the company, with approximately 7 million shares worth $548 million.

Baron Small Cap Fund made the following comment about Planet Fitness, Inc. (NYSE:PLNT) in its Q4 2022 investor letter:

“Shares of Planet Fitness, Inc. (NYSE:PLNT), the leading franchiser and operator of low-cost fitness centers, rose after reporting strong results. The company reported system-wide same-store sales increased 8.2%, raised estimates for growth in net income, and authorized another large share repurchase. Membership grew to an all-time record, now fully recovered from the pandemic lows. New gym openings are somewhat constrained by availability of HVAC units, but we envision the pace of growth will accelerate and that the base of gyms can still double over time from 2,000 to 4,000. We believe that EBITDA can grow at a mid-teens rate long term on a declining share count and that the trading multiple can modestly expand, which will drive continued good stock performance.”

11. Hasbro, Inc. (NASDAQ:HAS)

Number of Hedge Fund Holders: 32

Hasbro, Inc. (NASDAQ:HAS) operates as a play and entertainment company in the United States and internationally. The company’s business is divided into three segments – Consumer Products, Wizards of the Coast and Digital Gaming, and Entertainment. On February 13, Hasbro, Inc. (NASDAQ:HAS) declared a quarterly dividend of $0.70 paper share, in line with previous. The dividend is payable on May 15, to shareholders of record on May 1. The fourth quarter revenue of $1.68 billion exceeded Wall Street estimates by $10 million. It is one of the best consumer discretionary stocks to invest in.

On February 17, DA Davidson analyst Linda Bolton Weiser maintained a Buy recommendation on Hasbro, Inc. (NASDAQ:HAS) but lowered the firm’s price target on the shares to $80 from $95. In a research note to investors, the analyst stated that after announcing a Q4 shortfall, Hasbro, Inc. (NASDAQ:HAS)’s full-quarter report and 2023 guidance were significantly below expectations. Nonetheless, Hasbro, Inc. (NASDAQ:HAS) has several top-line drivers in 2023, including toys for six blockbuster movies.

According to Insider Monkey’s fourth quarter database, 32 hedge funds were bullish on Hasbro, Inc. (NASDAQ:HAS), compared to 33 funds in the last quarter. Cliff Asness’ AQR Capital Management is the biggest position holder in the company, with 1.15 million shares worth $70 million.

ClearBridge Investments made the following comment about Hasbro, Inc. (NASDAQ:HAS) in its Q3 2022 investor letter:

“Rising inflation pressuring consumer budgets for discretionary purchases, as well as volatile currency markets, weighed on global entertainment company Hasbro, Inc. (NASDAQ:HAS), which owns Monopoly, My Little Pony, Nerf, Play-Doh and other games and brands. The main detractors from absolute returns were positions in Microsoft, Ball, Intel, Hasbro and McCormick (MKC).”

10. Boyd Gaming Corporation (NYSE:BYD)

Number of Hedge Fund Holders: 39

Next on our list of the best consumer discretionary stocks is Boyd Gaming Corporation (NYSE:BYD), which operates as a gaming company in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana, Mississippi, Missouri, Ohio, and Pennsylvania. It operates through three segments – Las Vegas Locals, Downtown Las Vegas, and Midwest & South. On February 14, Boyd Gaming Corporation (NYSE:BYD) declared a $0.16 per share quarterly dividend, a 6.7% increase from its prior dividend of $0.15. The dividend is payable on April 15, to shareholders of record on March 15.

On February 9, Susquehanna analyst Joseph Stauff raised the firm’s price target on Boyd Gaming Corporation (NYSE:BYD) to $80 from $72 and reiterated a Positive rating on the shares. The analyst lifted his target to reflect his higher estimates as the company’s outlook provides downside protection.

According to Insider Monkey’s fourth quarter database, 39 hedge funds were bullish on Boyd Gaming Corporation (NYSE:BYD), compared to 36 funds in the prior quarter. John W. Rogers’ Ariel Investments is the largest stakeholder of the company, with 3.45 million shares worth $188.50 million.

Baron Discovery Fund made the following comment about Boyd Gaming Corporation (NYSE:BYD) in its Q4 2022 investor letter:

“Shares of U.S. regional casino operator Boyd Gaming Corporation (NYSE:BYD), increased in the fourth quarter due to stable consumer visitation and spending levels despite an uncertain macro environment. The company continued to generate strong free cash flow that it is using to invest into its casinos, pay out dividends, and buy back shares. The company has repurchased 8% of its shares over the past year while paying out a 1% dividend. We believe Boyd can withstand any bumps in the economy given its strong balance sheet and free cash flow. We also don’t think Boyd’s share price reflects its 5% ownership in online bookmaker FanDuel. We continue to be positive on the company’s long-term prospects.”

9. Chipotle Mexican Grill, Inc. (NYSE:CMG)

Number of Hedge Fund Holders: 42

Chipotle Mexican Grill, Inc. (NYSE:CMG) owns and operates Chipotle Mexican Grill restaurants. It provides burritos, burrito bowls, quesadillas, tacos, and salads. The company was founded in 1993 and is headquartered in Newport Beach, California. It is one of the best consumer discretionary stocks to monitor. In the fourth quarter of 2022, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s in-restaurant sales increased 17.5%, while digital sales represented 37.4% of food and beverage revenue.

According to Cowen analyst Andrew Charles, Chipotle Mexican Grill, Inc. (NYSE:CMG) has faced challenges in maintaining margins due to inflation in industry commodity and labor costs, resulting in the highest level of pricing in four decades. The company has predicted that it will achieve 27% restaurant margins with $3 million sales volumes, a target that both Cowen and consensus forecasts anticipate will be reached in 2024. Despite this, the analyst maintained its Outperform rating and $2040 price target for Chipotle Mexican Grill, Inc. (NYSE:CMG) shares on February 13.

According to Insider Monkey’s fourth quarter database, 42 hedge funds were long Chipotle Mexican Grill, Inc. (NYSE:CMG), compared to 45 funds in the earlier quarter. Bill Ackman’s Pershing Square held the largest stake in the company, comprising 1.10 million shares worth $1.5 billion.

Here is what ClearBridge Investments Mid Cap Growth Strategy has to say about Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q3 2022 investor letter:

“We added to our position in made-to-order burrito chain Chipotle Mexican Grill (NYSE:CMG). Despite restaurants typically being seen as more sensitive to an economic downturn, the company has consistently been able to exceed expectations through its ability to pass through inflationary increases in both materials and labor through strong pricing power. Chipotle’s investments in digital technology have enabled it to leverage the higher margin delivery business, highlighted by the implementation of “Chipotlanes”, a digital drive through option in suburban areas where customers pay in advance online, to drive significant increases in restaurant volumes.”

8. MGM Resorts International (NYSE:MGM)

Number of Hedge Fund Holders: 48

MGM Resorts International (NYSE:MGM) owns and manages casino, hotel, and entertainment resorts in the United States and Macau. The company is divided into three segments – Las Vegas Strip Resorts, Regional Operations, and MGM China. MGM Resorts International (NYSE:MGM)’s resorts offer a range of amenities such as gaming, hotels, conventions, dining, entertainment, retail, and other resort facilities. MGM Resorts International (NYSE:MGM)’s Q4 revenue of $3.59 billion climbed 17.3% year-over-year, beating Wall Street estimates by $240 million. It is one of the best consumer discretionary stocks to consider.

On February 24, Barclays analyst Brandt Montour initiated coverage of MGM Resorts International (NYSE:MGM) with an Overweight rating and a $59 price target. The analyst stated that MGM Resorts International (NYSE:MGM) is a premium diversified global gaming operator with an attractive valuation, and has multiple opportunities to succeed, such as the strength of Las Vegas, the recovery of Macau, the company’s new project pipeline, and its near-term elevated share repurchases. The analyst also believes that MGM Resorts International (NYSE:MGM) has an attractive premium positioning in Las Vegas and in the U.S. regional market.

According to Insider Monkey’s fourth quarter database, 48 hedge funds were bullish on MGM Resorts International (NYSE:MGM), compared to 53 funds in the prior quarter. Keith Meister’s Corvex Capital is the largest stakeholder of the company, with 6.6 million shares worth $223.7 million.

Baron Funds made the following comment about MGM Resorts International (NYSE:MGM) in its Q3 2022 investor letter:

“MGM Resorts International (NYSE:MGM) is a leading global casino and entertainment company with 29 unique hotels and casinos including some of the most recognizable resort brands such as Bellagio, MGM Grand, ARIA, and Park MGM. At its recent price of only $30 per share, we believe MGM’s valuation is compelling at only 6 times 2023 estimated cash flow.”

7. Airbnb, Inc. (NASDAQ:ABNB)

Number of Hedge Fund Holders: 54

Airbnb, Inc. (NASDAQ:ABNB) operates a platform that allows hosts to provide accommodations and experiences to guests worldwide. Through a marketplace model, the company connects hosts and guests via online or mobile devices to book stays and experiences. Airbnb, Inc. (NASDAQ:ABNB) reported a Q4 GAAP EPS of $0.48 and a revenue of $1.9 billion, outperforming Wall Street estimates by $0.21 and $40 million, respectively. The company expects Q1 2023 revenue of $1.75 billion to $1.82 billion, while the consensus revenue estimate is $1.69 billion.

On February 28, Argus upgraded Airbnb, Inc. (NASDAQ:ABNB) to Buy from Hold with a $144 price target. The analyst believes that the demand for Airbnb, Inc. (NASDAQ:ABNB) rentals will remain robust due to the trend of longer stays and expansion in urban markets. Additionally, the easing of COVID-19 restrictions in China, growth in Latin America, and early bookings for summer vacations in Europe are expected to benefit Airbnb. Argus has also revised its earnings per share estimates for FY23 and FY24 to $3.60 and $4.00, respectively, up from $3.00 and $3.60.

According to Insider Monkey’s fourth quarter database, 54 hedge funds were long Airbnb, Inc. (NASDAQ:ABNB), compared to 58 funds in the prior quarter. John Overdeck and David Siegel’s Two Sigma Advisors is a prominent stakeholder of the company, with 2.85 million shares worth $244.5 million.

Artisan Global Opportunities Fund made the following comment about Airbnb, Inc. (NASDAQ:ABNB) in its Q4 2022 investor letter:

“Airbnb, Inc. (NASDAQ:ABNB) is the world’s largest, well-known and fastest growing provider of short-term rental properties via a simple and intuitive online platform. The company has been benefiting from a strong recovery in travel demand so far this year, but shares have been weaker alongside growth stocks in general. Recent results showed nearly 100 million nights booked, up 25% YoY, gross booking value growth of 31% and revenue growth of 29%. We believe Airbnb will continue to generate attractive top-line growth that will outpace that of overall travel. From a demand perspective, we expect the company to continue to maintain its leadership in long-term stays and benefit from a recovery in urban, cross-border and APAC re-opening. The company has rolled out products to improve its value proposition to travelers and hosts, including “Smart Pricing” to ensure its supply continues to provide relative value to consumers, “Aircover for Hosts” to increase supply and “Categories” to better match consumer demand to available supply. Given these profit cycle tailwinds and shares trading at an attractive discount to our PMV estimate, we remain invested.”

6. Las Vegas Sands Corp. (NYSE:LVS)

Number of Hedge Fund Holders: 57

Las Vegas Sands Corp. (NYSE:LVS) and its subsidiaries are responsible for creating, owning, and managing all-inclusive resorts in Singapore and Macau. These resorts offer various services including lodging, gambling, entertainment, shopping centers, convention centers, celebrity chef restaurants, and other amenities.

On March 13, Jefferies analyst David Katz increased the firm’s price target on Las Vegas Sands Corp. (NYSE:LVS) to $66 from $64 and maintained a Buy rating on the shares. After conducting property tours and meeting with management in Macau and Singapore, the firm has expressed greater confidence in the recovery and capital spending for Las Vegas Sands Corp. (NYSE:LVS). As a result, Jefferies has raised its valuation multiple to reflect the accelerating trends in Macau and higher estimates for Marina Bay Sands.

According to Insider Monkey’s fourth quarter database, 57 hedge funds were bullish on Las Vegas Sands Corp. (NYSE:LVS), compared to 48 funds in the earlier quarter. Dmitry Balyasny’s Balyasny Asset Management is a prominent stakeholder of the company, with 2.05 million shares worth $98.7 million.

In addition to Booking Holdings Inc. (NASDAQ:BKNG), Starbucks Corporation (NASDAQ:SBUX), and McDonald’s Corporation (NYSE:MCD), Las Vegas Sands Corp. (NYSE:LVS) is one of the top consumer discretionary stocks to watch.

ClearBridge Value Equity Strategy made the following comment about Las Vegas Sands Corp. (NYSE:LVS) in its Q4 2022 investor letter:

“We also initiated a new position in Las Vegas Sands Corp. (NYSE:LVS), in the consumer discretionary sector, which owns and operates several high-profile resorts and casinos in Macau and Singapore. One of the highest probability macro events we anticipate in 2023 is a China reopening, with forecasts (and the Chinese government itself) targeting over 5% growth. A big driver of this growth will be the massive pent-up demand for travel and entertainment after almost three years of being locked down and accumulating a mountain of private savings. We felt that Las Vegas Sands was an attractively-valued opportunity to capture the Chinese reopening, and specifically an eventual rebound in Macau from historically depressed levels. Las Vegas Sands is yet another example of a name supported by strong earnings growth that should generate positive performance, regardless of recession potential, due to the downside protection afforded by its solid free cash flow generation from already reopened destinations in Singapore. When combined with the material upside as earnings and cash flow gap up on a Macau reopening, we believe the risk/reward tradeoff is heavily underappreciated from the market and were able to capitalize and enter the stock at an extremely compelling entry point.”

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