In this article we discuss the 5 best consumer discretionary stocks to buy now. If you want to read our detailed analysis of the consumer discretionary industry, go directly to the 15 Best Consumer Discretionary Stocks to Buy Now.
5. Lowe’s Companies, Inc. (NYSE: LOW)
Number of Hedge Fund Holders: 61
Lowe’s Companies, Inc. (NYSE: LOW) is an American retail company that deals in home improvement. The company started as a hardware store in North Carolina and is now one of the largest home improvement organizations in the world. It serves over 20 million customers per week and has more than 300,000 associates in the U.S. and Canada.
In Q1 2021, Lowe’s Companies, Inc. (NYSE: LOW) reported net earnings of $2.3 billion, compared with $1.3 billion during the same period last year. The EPS was recorded at $3.21, beating the estimate by $0.59. The company generated $24.4 billion in revenue, up from $19.7 billion in the prior-year quarter. Comparable sales in the U.S. also grew by 24.4% in the first quarter. The company’s board announced a quarterly dividend of $0.80 per share, showing a 33% growth. The company also paid $440 million in dividends during the quarter.
In June, Wells Fargo praised the company’s earnings and maintained an ‘Overweight’ rating on the LOW stock. Similarly, in May, RBC Capital also acknowledged a 24% growth in the company’s home improvement sector, and raised its price target on LOW to $240, with an ‘Outperform’ rating. The LOW stock has gained 38.05% in the past year.
As of Q1 2021, 61 hedge funds have positions in Lowe’s Companies, Inc. (NYSE: LOW), worth $5.17 billion. With 11.9 million shares, worth $2.27 billion, Pershing Square is the leading shareholder of the company.
Pershing Square Holdings Limited released its Q4 2020 investor letter and mentioned Lowe’s Companies, Inc. (NYSE: LOW). Here is what the company has to say about LOW:
“Lowe’s is a high-quality business with significant long-term earnings growth potential. We initiated our investment in the company in April 2018 largely because we believed that the hiring of a new high-caliber management team could dramatically improve the business and close the performance gap to its closest competitor, Home Depot. Marvin Ellison became CEO in July 2018, and immediately began working on a multi-year transformation plan to bolster Lowe’s retail fundamentals, reduce structural costs, expand distribution capabilities, and modernize systems and the company’s online capabilities.
In 2020, Lowe’s experienced unprecedented demand driven by consumers nesting at home, higher home asset utilization and a reallocation of discretionary spend. Lowe’s earlier decision to modernize the company’s online offering allowed it to meet consumers’ surging demand. Further, its commitment to improve the company’s retail fundamentals allowed Lowe’s to showcase its enhanced merchandising, greater in-stock-levels, and excellent customer service. In the fourth quarter, the company completed 95% of its store layout resets which include a more intuitive shopping experience complete with a more Pro-centric layout (by “Pro” we refer to the professional tradesmen that perform repair and maintenance, remodeling and construction services). The company is also rolling out a new Pro CRM tool, which should improve Lowe’s Pro market share…” (Click here to see the full text)
4. Starbucks Corporation (NASDAQ: SBUX)
Number of Hedge Fund Holders: 61
Starbucks Corporation (NASDAQ: SBUX) is an American coffeehouse chain and roastery. The company was founded in 1971 and has headquarters in Seattle. It started as a retailer and roaster of ground coffee, tea, and spices. As of 2021, the company has over 32,000 outlets in 80 countries.
In Q2 FY21, Starbucks Corporation (NASDAQ: SBUX) generated $6.7 billion in revenue, up from $5.9 billion, presenting an 11% year-over-year growth. The EPS of $0.62 beat the market consensus by $0.09. The U.S. accounted for $4.6 billion of the gross revenue, showing a 9% growth in comparable sales. Due to strong quarterly results, many investment banks raised their price targets on the SBUX stock, such as Oppenheimer, Tigress Financial, MKM Partners, and Morgan Stanley. In July, Oppenheimer raised its price target on SBUX to $140 and rated it as an ‘Outperform’. In the past year, the SBUX stock has delivered a 58.3% return to shareholders.
At the end of Q1 2021, 61 hedge funds tracked by Insider Monkey have positions in Starbucks Corporation (NASDAQ: SBUX), worth $4.4 billion.
Wedgewood Partners released its Q1 2021 investor letter and mentioned Starbucks Corporation (NASDAQ: SBUX) and other stocks in it. Here is what the firm has to say about SBUX:
“As we have observed Starbucks through the unpredictable events of the past year, we believe all the things we liked about the Company’s competitive position before the pandemic have been turbocharged by the pandemic. We always have maintained the Company had no serious competition, anyway, and that in both large growth markets (U.S. and China), there was enormous fragmentation of share that would allow the Company to continue to expand through market expansion (especially in China) and through share gain versus small competitors. In fact, when we last discussed Starbucks, there was a lot of noise about competition in China from a newly established domestic competitor, Luckin Coffee, and that situation quickly dissolved into farce. In any case, had Luckin been a legitimate business, we had maintained that China was a massive market – and one in which coffee consumption was massively underpenetrated in comparison to other markets. We believed too that there was plenty of room for multiple large competitors to exploit.
The pandemic disaster over the past year truly highlights the Company’s financial strength in comparison to its small competitors, most of which struggled to survive, and many of which didn’t make it. While there is no perfect data, we have seen estimates from industry groups and restaurant distributors that as many as 15-20% of small, independent restaurants across the broad food and beverage industry may have closed permanently as a result of the pandemic, sadly. Starbucks not only survived due to its superior financial position; they also used its financial resources to invest in a variety of expanded or new capabilities, including the addition of drive-through capacity, new “walk-through” pick-up locations in urban areas, increased investment in technology to drive speed within the stores and drive-through lanes, and expansion of its loyalty program. These could have been viewed, prior to the pandemic, as a fairly big advantage in terms of convenience alone versus the Company’s small primary competitors. In the age of the pandemic, though, one might consider something like a drive-through an absolute necessity, as customers choose not to expose themselves to the interior of restaurants or to other people…” (Click here to see the full text).
3. The Home Depot, Inc. (NYSE: HD)
Number of Hedge Fund Holders: 68
The Home Depot, Inc. (NYSE: HD) is a home improvement retailer that deals in products related to décor, furnishing, gardening, and construction. Along with this, the company also offers services related to home improvement. As of 2021, it has over 2,298 stores located in the U.S., Canada, and Mexico. The online store of The Home Depot, Inc. (NYSE: HD) currently has over 1 million products.
The first-quarter earnings of The Home Depot, Inc. (NYSE: HD) beat the analysts’ expectations due to increasing demand for improvement projects. The net earnings for the quarter were recorded at $4.1 billion, up from $2.2 billion during the same period last year. The EPS of $3.86 beat the market consensus by $0.78. Comparable sales also grew by 31% globally. Building material and décor accounted for $13.6 and $11.8 billion of the gross revenue, respectively. Moreover, the company’s online platform also grew by 27% and represented 14.3% of the net sales.
Recently, many investment banks raised their price targets on the HD stock, such as Loop Capital, Credit Suisse, and Truist. Following the strong first-quarter results, JP Morgan also raised its price target on HD to $345, with an ‘Overweight’ rating on the shares. The HD stock has gained $23% year to date.
At the end of Q1, 68 hedge funds tracked by Insider Monkey have positions in The Home Depot, Inc. (NYSE: HD), worth $4.3 billion.
Ensemble Capital recently released its first-quarter 2021 investor letter and mentioned The Home Depot, Inc. (NYSE: HD) and other stocks in it. Here is what the firm has to say about HD:
“Notable contributors to the Fund’s returns this quarter (included) Home Depot. Home Depot (8.9% weight in the Fund) continued to benefit from a red-hot housing and home improvement market, delivering record financial performance in 2020. As a high return on invested capital business, any step-up in growth results in considerable shareholder value creation. While 2021 comparable sales may not yield impressive headline results, we believe there are several secular tailwinds supporting continued housing investment, including millennials entering prime household formation/peak earnings years, relatively low interest rates, and government policies.
Home Depot (8.9% weight in the Fund): The big orange sign of Home Depot is a familiar sight for homeowners across the country. Despite the rise of Amazon, Home Depot has generated outstanding results for shareholders during the rise of eCommerce, even as Home Depot’s end market in housing suffered the worst collapse in a century. Over the last fifteen years, a period which began at the peak of the housing bubble, Home Depot’s stock has generated annual returns of 17% a year, outperforming the S&P 500 by approximately 7% a year…” (Click here to see the full text)
2. Nike, Inc. (NYSE: NKE)
Number of Hedge Fund Holders: 78
Nike, Inc. (NYSE: NKE) is an American multinational organization that designs, manufactures, and markets footwear, accessories, apparel, and athletic equipment. It is the global leader of athletic shoes and apparel and sells products in over 170 countries.
In Q4 FY21, Nike, Inc. (NYSE: NKE) reported a net income of $1.5 billion, up from $790 million during the same period last year. The EPS beat the market consensus by $0.42 at $0.93. Recently, Argus hiked its price target on NKE to $182, with a ‘Buy’ rating. In July, KGI Securities initiated its coverage on the NKE stock with an ‘Outperform’ rating.
At the end of Q1 2021, 78 hedge funds tracked by Insider Monkey have positions in Nike, Inc. (NYSE: NKE), worth $5.1 billion. With nearly 8 million shares, worth over $1 billion, Fundsmith LLP is the leading shareholder of the company.
Dynamo Cougar, a Brazilian investment management firm, published its fourth-quarter 2020 investor letter and mentioned Nike, Inc. (NYSE: NKE) and other stocks in it. Here is what it has to say about NKE:
“Nike used to have a very traditional IT infrastructure, which was the starting point for their transformation. Back in 2013 the company had most of their IT in one data center and two distinct IT and software development teams. The infrastructure was organized in a way that all IT solutions, such as Nike.com and Nike apps, were running on the same servers and databases. The result was that any change had to be approved and then deployed with the next release. It was a very manual process, depended on a number of different vendors, and had to be approved by a waterfall process involving both the software and the IT teams. As of 2018, the company has four AWS regions, 150 software engineers, three development locations, and multiple data center locations. In the process, the company decided that they would not just lift and shift their existing applications from their own servers to the public cloud, but instead decided to rethink every single component of their IT organization. The results show that this transformation worked. The organization went from one software deployment every two months to 2.6 deployments per day. Nike went from 90% manual software testing to 100% automated testing, which freed up a lot of developer time. They managed to reduce the time to make small changes on the website and apps from 3 hours to 5 seconds, which means they could react to sports and similar live events. In the past it took more than six months to add a new experience to their digital services, and today it takes one day. In the past they would have a 3-month lead time for new hardware and today they can scale and deploy without any lead time.5 The IT infrastructure now supports 50+ commerce countries versus 6 in 2012, supports 25 languages versus 7, and enables the e-commerce site to access the inventory of 500+ retail stores.
The early move to the cloud and the willingness to adapt to the new environment also allowed Nike to benefit from some significant learnings. For instance, the company first used the Cassandra database when they moved to the cloud. However, due to many technical limitations, it would not allow them to scale for peak demand. Peak demand was becoming a big problem because the Nike SNKRS App would launch products with very limited availability, which meant that millions of people would access the app at the same time. Nike then decided to move to the AWS DynamoDB database (a platform offering), which allowed them to scale up prior to these launches, and thereby spend 98% less than with Cassandra, while offering the same service. In addition, they managed to monitor the launches in real time, which allowed them to react to problems and error messages within seconds. The vast amount of data that is generated within this very short period is now analyzed with machine learning techniques to improve the stability, reliability, and optimization of future launches. The company is working on a number of other efforts that benefit from the cloud environment, such as the implementation of RFID whose data output is managed through the AWS IoT offering…” (Click here to see the full text)
1. Comcast Corporation (NASDAQ: CMCSA)
Number of Hedge Fund Holders: 88
Comcast Corporation (NASDAQ: CMCSA) is an American telecommunication company, with headquarters in Pennsylvania, U.S. The company owns some of the biggest entertainment channels, including Xfinity, NBCUniversal, Sky, NBC, etc. Recently, Netflix has announced its deal with Comcast Corporation (NASDAQ: CMCSA) for exclusive streaming rights for animated film features. CSCA tops our list of the best consumer discretionary stocks to buy now.
In Q1 2021, Comcast Corporation (NASDAQ: CMCSA) reported a net income of $3.5 billion, up 8.1% from $3.2 billion during the same period last year. The EPS beat the consensus by $0.17 at $0.76. Consolidated revenue also presented a 2.2% year-over-year growth at $27.2 billion. Xfinity accounted for $15.8 billion of the gross revenue, whereas NBCUniversal generated $7.0 billion. In the first quarter, the company’s free cash flow was $5.3 billion. The company paid $1.1 billion to shareholders through dividends.
The strong numbers secured positive ratings on the CMCSA stock from many investment banks, such as Benchmark, Raymond James, Craig-Hallum, etc. In June, Morgan Stanley stated higher expectations from NBCUniversal and Sky and raised its price target on CMCSA $70, with an ‘Overweight’ rating on the shares. In the past year, the CMCSA stock has delivered a $37.1% return to shareholders.
As of Q1 2021, 88 hedge funds tracked by Insider Monkey have positions in Comcast Corporation (NASDAQ: CMCSA), compared with 84 in the previous quarter. The total value of these stakes is $9.76 billion. With over 38 million shares, worth $2.06 billion, Eagle Capital Management is the biggest shareholder of the company.
ClearBridge Investments recently published its second-quarter 2021 investor letter and mentioned Comcast Corporation (NASDAQ: CMCSA) in it. Here is what the firm has to say about CMCSA:
“We funded the shift primarily with trims in Comcast following big gains in this name. Comcast is a long-term holding that have been and remain core holdings. During the quarter, however, we took gains and resized the positions to reflect their current risk-reward post strong increases in the stocks.
Comcast, like Blackstone, has been a meaningful long-term holding whose stock performance has at times lagged its robust fundamental performance. Over the last nine months the stock price caught up some with the fundamentals and looked like it had more room to run. Our thesis on the name evolved, however, following the May 17 announcement that competitor Discovery was merging its operations with Time Warner. This deal positions the new company as a credible competitor to Netflix, Amazon Prime, Hulu and Disney, and results in Comcast being left without the proverbial dance partner in the evolving pay TV/DTC landscape. While we continue to believe Comcast’s cable systems business is well-positioned and that NBCUniversal remains valuable, the competitive dynamic for NBCUniversal has stiffened. Our reduced position size reflects both our continued enthusiasm for many parts of the franchise and emerging concerns given the evolving pay TV/DTC landscape.”
You can also take a look at 12 Best Ecommerce Stocks to Invest In and 11 Best Materials Stocks for 2021.
