When to Buy Consumer Discretionary Stocks

There’s been a renewed interest in consumer discretionary stocks growing across financial markets. Investors are getting more confident and moving away from “safety trades” and into stocks that stand to benefit the most from a booming economy. And they’re looking for the best consumer discretionary stocks to capture those future gains…

But before you go jumping into this sector headfirst, there are some things every investor should know about consumer discretionary stocks. And the very first thing is what they are and what separates them from other consumer-focused companies.

Consumer Discretionary Stocks are Optional

You see, there are two sectors when it comes to the products that consumers like you and me consume. First you’ve got staples, which are items considered essential to daily life like food, hygiene products, and household items. And then you’ve got consumer discretionary stocks.

These are companies that provide goods or services that are considered a “luxury.” These are non-essential purchases for things like entertainment, apparel, electronics, and travel, to name a few. And the big difference between these two categories is whether they are indispensable.

You can go without that vacation this year. And you don’t have to buy new video games for the kids. But you can’t not eat. And you can’t not drink. You’re probably not going to stop washing your dishes because times are tough. But you might put off buying that new TV.

So when times are tough, companies in that consumer staples sector represent an attractive buy for future gains. But when people are feeling good about the economy, consumer discretionary stocks are where investors want to look.

But these days, it really doesn’t seem like folks are feeling that great about the economy. So why in the heck are they looking for consumer discretionary stocks to buy?

The Dual-Edged Sword of Monetary Policy

Well, there’s a pretty simple answer for that. And it has a lot to do with the inflation we’ve been dealing with for three years now. You see, there are two cycles when it comes to monetary policy: inflation and deflation.

And both of those cycles lead to changes in consumer behavior. During times of deflation, many people put off purchases today because they assume the product will be cheaper in dollar terms tomorrow. As the purchasing power of the dollar grows, goods become cheaper. But this “wait and see” attitude can destroy the profits of consumer discretionary stocks.

But that’s not where we are right now, is it? Inflation is still there, and while it’s not growing as fast as it was, it’s still growing faster than anyone wants it to. And in times like these, consumers have to work based on the assumption that things will be more expensive tomorrow than they are today.

So instead of putting off that purchase to see if they can get a better deal down the road, many are accelerating it so that they don’t have to pay a whole lot more after inflation takes its toll. And that, despite it making folks feel uneasy about the economy, provides a boon for consumer discretionary stocks.

So while the consensus might be that the economy is on thin ice and that inflation is going to keep gutting spending power, that’s actually what’s likely driving the prices of consumer discretionary stocks higher and higher.

Three Consumer Discretionary Stocks to Buy

Now that you’ve got a better understanding of what consumer discretionary stocks are… And now that you understand why they can outperform, even when folks are a little down about the economy… Let’s take a little time and cover some of the top consumer discretionary stocks investors can buy.

Before we get into it, though, I just need to add a disclaimer: There are a lot of great consumer discretionary stocks out there, but my favorite are the kind that pay dividends to investors. And every single one of these consumer discretionary stocks does exactly that and is poised for stellar growth.

So, with that being said, here are three great consumer discretionary stocks every investor should consider owning:

First off, is the maker of one of the two best vehicles I’ve ever owned in my life: Toyota Motor Corp. (NYSE: TM). Back when I was a younger man, I bought a used Toyota Tacoma with about 60,000 miles on it. And I drove it until it had over 200,000 miles before donating it to charity. It was an absolute tank of a pickup truck.

And I’m not the only one who feels that way. As nearly every other major automaker suffers sales declines, Toyota has been seeing massive growth. Its cars are reliable. Its fleet of hybrids is affordable and environmentally friendly. And it’s outperforming every other automaker in the world right now.

Second on our list of consumer discretionary stocks you should consider buying, we’ve got Dick’s Sporting Goods Inc. (NYSE: DKS). And while I know Dick’s has faced some backlash after pulling guns and ammo from their stores, that’s a very small piece of the company’s retail sales.

Finally, coming in third on our list of great consumer discretionary stocks, we’ve got Wingstop Inc. (NASDAQ: WING). As a national restaurant chain, Wingstop represents an interesting consumer discretionary stock pick because it’s not the kind of purchase people accelerate to avoid inflation.

You don’t go out to dinner tonight to avoid paying more to go out to dinner next year. But when people are feeling glum about the economy, which inflation has a crazy knack for making them feel, they look for small rewards. And taking the family out to eat at a Wingstop, while it might not be Ruth’s Chris, is a way for folks who can’t afford to book that vacation early to get some enjoyment out of life.

The Bottom Line About Consumer Discretionary Stocks

So there you have it. Those are three of the top-performing consumer discretionary stocks of 2024. All three of them pay investors dividends for owning them. And all three could be poised for outperformance as folks accelerate those purchases and look for a little sunshine in an otherwise cloudy sky.

Just keep in mind that consumer discretionary stocks, while they’re sweet right now, can turn sour in an instant if the economy enters a recession. And if the Fed is too effective in combating inflation, deflation could be the result, and that would hit consumer discretionary stocks hard too.

But for now, they’re starting to become some of the best-performing picks on the market. And they look like they could keep up that outperformance for at least a few more months. Just make sure you keep coming back to Wealth Daily so you know when to sell those consumer discretionary stocks for the biggest profits.

To your wealth,

Jason Williams

@TheReal_JayDubs

Angel Research on Youtube

After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter; the founder of Future Giants, a nano cap investing service; and authors The Wealth Advisory income stock newsletter. He is also the managing editor of Wealth Daily. To learn more about Jason, click here.

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