Say goodbye to peak inflation, because it’s so last year!
Consumer discretionary stocks may benefit from the easing up of inflation rates as consumers may have more discretionary income to spend on non-essential goods and services.
As a result, investors may consider adding consumer discretionary stocks to their portfolio as a way to potentially take advantage of this trend.
With the Fed starting to become chill with the interest rates, people won’t be stressing as much about mortgage payments, or credit card debt, and thereby possibly get an increase in their discretionary spending.
The U.S. labor market is also holding steady, and earnings reports suggest that consumer discretionary companies are weathering the storm pretty well.
This means big things are coming for the consumer discretionary sector, and are poised to reap the rewards!
For this week, check out my top consumer discretionary stocks, which are primed to thrive in a projected lower-inflation environment.
Get in now before the others do!
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Starbucks
While I’m not really a frequent Starbucks drinker (I prefer grinding and making my own coffee), SBUX is one of the companies I see that can benefit from easing inflationary pressures.
The pandemic dealt a significant blow to Starbucks, forcing the coffeehouse giant to temporarily close its stores worldwide for health and safety reasons.
However, as vaccination rates rose and the world began to reopen, consumer behavior normalized, and the company bounced back with solid growth.
Despite a 55% increase from its low last year, Starbucks’ shares have not fully recovered from their all-time high and are currently down by about 17%.
So, is it a good time for investors to jump in?
One of the standout performers in the latest quarter was Starbucks’ improving digital penetration.
The company has achieved a remarkable milestone of 30.4 million 90-day active rewards members in the U.S., representing a 15% increase compared to the previous year.
Additionally, customers loaded their accounts with a whopping $3.3 billion of funds during the fiscal first quarter, underscoring the brand’s enduring popularity.
Despite facing challenges from macroeconomic headwinds and inflation, the leadership team remains optimistic and confident about achieving its fiscal 2023 financial targets.
These ambitious goals include 11% revenue growth, and a minimum of 15% adjusted EPS growth, making it clear that Starbucks is determined to maintain its position as a top performer in the industry.
Especially now that consumers are now projected to recover some buying power, expect more people to drink expensive coffee!
Nike
I still remember the day my parents bought me my first pair of Nike basketball shoes.
I was begging them for months for a pair of Jordan 11s, because they didn’t have the discretionary money at that moment.
But when they finally did buy me a pair for Christmas, I was literally shaking when I opened my Christmas gift!
Enough of the flashbacks, and back to the present, Nike is another company that stands to benefit from increased buying power from consumers.
While Nike is currently facing challenges with inventory, currency fluctuations, and headwinds in China, shareholders should focus less on these short-term issues and instead look at the bigger picture.
Despite these challenges, Nike is still a great company to consider owning.
According to Wall Street consensus analyst estimates, the company is expected to achieve impressive compound annual growth rates of 8.1% in revenue and 11.3% in earnings per share between fiscal 2022 and fiscal 2027.
Additionally, free cash flow is expected to increase at an average annual rate of 13.5% during this time.
Given the durability and resilience of Nike’s business model, I am highly confident that the company can meet, and possibly even exceed, these financial targets.
Also, one of Nike’s biggest strengths is its powerful brand. By continually offering high-quality and highly desired apparel and footwear, Nike has solidified its position as a top player in the global sportswear market.
With shares currently trading below their all-time high, and at a price-to-earnings ratio lower than the trailing five-year average, now could be a great time to consider adding Nike to your investment portfolio.
Home Depot
With Home Depot, the tables have turned, and I am now the one being bugged about something but do I have a choice against the wife
Homeowners were holding off home improvements or repairs, waiting for better economic conditions.
The time of holding off may be at an end.
As the largest home improvement retailer in the world, Home Depot has experienced significant earnings growth in recent years.
This growth can be attributed to increased demand as people spent more time at home and focused on home improvement projects.
Sales have increased by over $47 billion in the past three years, reflecting a compound annual growth rate of 12.6%.
Furthermore, the company has seen a positive return on its investments.
Professional customers’ backlogs are still strong compared to historical levels, and Home Depot has made progress in key areas that will serve it well in the long run.
For instance, the company’s digital platform has seen a sales increase of more than 4% in the latest quarter.
Investors can also expect to share in Home Depot’s success, as the company has recently increased its quarterly dividend by 10%, and intends to continue increasing payouts in the future.
With shares trading at approximately 17 times trailing-12-month earnings, investors have an excellent opportunity to invest in this stock, which is well-positioned to take advantage of an improving economic environment.
Related Article To Read: Take Shelter in These Dividend-Paying Stocks, and Wait Out the Storm
Final Words
Still, if consumer spending habits and patterns weaken, particularly if interest rates and inflation remain a headache for the Federal Reserve, consumers will have less discretionary money to spend on anything other than necessities, and result in lower revenues for this sector.
Still, whether you invest in restaurants, clothing, the leisure industry, retailers, or other consumer discretionary sub-sectors, consumer discretionary stocks can give investors an efficient method to capitalize on pockets of economic growth.
To enhance your prospects of outsized returns, keep a long-term perspective, and focus on these highest-quality names I provided in the consumer discretionary category.
And to keep it simple: When inflation spikes, consumer panic. Investors become aware of the negative sentiment, and sell consumer stocks but if inflation has indeed peaked, these dynamics will reverse, and equities would rise.
Assuming I’m right, it’s time to get your head down, and invest in some consumer discretionary stocks.
After all, life is short, and you deserve to have a little fun, and make some money while you’re at it!
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