We recently compiled a list of the 12 Best Consumer Discretionary Stocks to Buy According to Analysts. In this article, we are going to take a look at where BorgWarner Inc. (NYSE:BWA) stands against the other consumer discretionary stocks.
The Consumer Discretionary sector, as measured by the S&P 500 Consumer Discretionary Sector performance, surged approximately 30% in 2024, outperforming the broader market by around 6%. This sector represents a vibrant and high-growth segment of the market, driven by consumer spending behaviour, economic cycles, and product innovation. It encompasses industries such as retail, automobiles, travel & leisure, e-commerce, luxury goods, and home improvement—each benefiting from rising disposable incomes, evolving consumer lifestyles, and technological advancements.
Historically, consumer stocks have performed exceptionally well during bull markets, making them a compelling choice for growth-oriented portfolios. With GDP growth and labour market strength fuelling consumer confidence, the sector remains well-positioned to capitalize on economic expansion and increasing global wealth.
A Long-Term Growth Driver: The Rise of EVs
The rapid expansion of the electric vehicle (EV) market has emerged as a major catalyst within the Consumer Discretionary sector. As global automakers accelerate their transition toward electrification, many companies and traditional manufacturers investing in EVs have seen substantial capital inflows. Beyond revolutionizing the automotive industry, the shift to EVs is also driving demand across other adjacent sectors, including battery technology, renewable energy, and smart mobility solutions.
Christopher Tsai, President and Chief Investment Officer of Tsai Capital, highlighted the transformative outlook for EVs in his Q4 2024 investor letter, stating:
“EVs are so much more efficient than gas-powered cars, their adoption will likely follow the same exponential growth trajectory that defines nearly all disruptive technologies. Just as the spinning wheel, steam engine, automobile, cable television, and streaming services were swiftly embraced despite early skepticism, the path toward widespread EV adoption seems clear.”
Where to Find Value?
According to Jordan Michaels, Fidelity Sector Portfolio Manager for Consumer Discretionary, the sector’s performance in 2025 is expected to be influenced by macroeconomic factors, particularly the health of the job market. The trajectory of these stocks will largely depend on the resilience of U.S. consumers and broader economic conditions. If economic growth remains steady and employment remains strong, consumer spending is likely to persist. Furthermore, anticipated interest rate cuts from the Federal Reserve could ease financial pressures, unlocking more cash or credit for delayed big-ticket purchases in home improvement and auto-related categories.
Jordan further emphasized investment opportunities within the sector, noting:
“With the evolving business cycle in mind, interest-rate-sensitive industries, such as auto- and home-related categories, look interesting. Not only have these groups recently sported attractive valuations, but they have tended to lead the market’s advance amid the first signs of lower interest rates because they typically benefit from increased borrowing.”
Our Methodology
To determine the 12 best consumer discretionary stocks to buy, we first compiled a list of U.S.-listed companies in the sector with strong fundamentals and a market capitalization of at least $2 billion. We then ranked them based on their potential upside, with the stock offering the highest upside placed at the top. Additionally, we included the number of hedge funds holding stakes in these companies as of Q3 2024.
Note: All pricing data is as of market close on February 12.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Workers assembling a state-of-the-art engine in a modern auto factory.
BorgWarner Inc. (NYSE:BWA)
Upside Potential: 39%
Number of Hedge Fund Holders: 27
BorgWarner Inc. (NYSE:BWA) provides clean and efficient technology solutions for combustion, hybrid, and electric vehicles. The company’s products enhance vehicle performance, propulsion efficiency, stability, and air quality. It manufactures and sells these products globally, primarily to original equipment manufacturers (OEMs) of light vehicles, including passenger cars, sport-utility vehicles, vans, and light trucks.
BorgWarner Inc. (NYSE:BWA)’s strategy focuses on expanding its product portfolio through organic investments and technology-focused acquisitions. The company’s balanced portfolio is particularly crucial as the automotive industry experiences volatility in electric vehicle adoption across different regions. It reported steady Q4 2024 results, although they were slightly below street expectations. Q4 sales declined by 2.4% to $3.4 billion, but the adjusted operating margin was 10.2%, which was at the upper end of its guidance. For FY 2025, the company forecasted net sales to be between $13.4 billion and $14.0 billion, indicating an expected decline in sales next year. However, it anticipates maintaining an operating margin similar to 2024. Overall, the performance remained healthy given the lackluster market conditions.
Most analysts on the street, including Wells Fargo, JP Morgan, and Evercore ISI, have maintained their Buy rating on BorgWarner Inc. (NYSE:BWA) in their recent updates. On February 11, Barclays analyst also reiterated his Buy rating but marginally lowered the price target to $42 from $43. He believes the company’s guidance for 2025 was a necessary reset of expectations and anticipates continued margin outperformance from BorgWarner Inc. (NYSE:BWA).
Overall BWA ranks 9th on our list of the consumer discretionary stocks to buy according to analysts. While we acknowledge the potential of BWA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BWA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.