Top Consumer Discretionary Stocks for June 2023 (2024)

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• MINISO Group Holding Ltd.:MINISO is a Chinese global household goods store. It specializes in low-cost products targeted to a younger demographic. MINISO increased its total store count by more than 400 in the last year, helping to contribute to 26% revenue growth for the first quarter of 2023.
• Carrols Restaurant Group Inc.: Carrols is a restaurant franchisee company. It owns and operates more than 1,000 Burger King restaurant locations, as well as several dozen Popeyes restaurant locations. Total restaurant sales increased almost 12% year-over-year for the first three months of 2023, driven by strong growth at both Burger King and Popeyes locations.
• Wingstop Inc.: Wingstop operates an international chain of chicken wing restaurants. It also offers franchising opportunities. The company opened 37 new locations in the first three months of 2023. It reported a 20% increase in domestic same-store sales and a 30% increase in system-wide sales for the period.

Advantages of Consumer Discretionary Stocks

Growing Economy: Consumer discretionary stocks capitalize on a healthy economy. Consumers with higher discretionary income are more likely to purchase "wants," such as new designer clothes, the latest electronic gadgets, or a long-awaited family vacation. Generally, the group performs well when consumer confidence is high and shoppers feel secure about their employment situation and financial position. Investors can track consumer sentiment by following the Consumer Confidence Index (CCI)—a survey administered by The Conference Board that measures how optimistic or pessimistic consumers are regarding their expected financial situation.

Brand: Many consumer discretionary stocks benefit from strong brand recognition, helping drive revenue and create market share. Moreover, companies that build brand loyalty can enter new product areas, or even new industries, taking their existing customers with them. For example, Amazon.com, Inc. (AMZN) started as an online marketplace for books, but through increased brand awareness, it grew into an e-commerce giant and is now a global conglomerate involved in everything from digital streaming to logistics.

Risks of Consumer Discretionary Stocks

Slowing Economy: Just as consumer discretionary stocks perform well during periods of economic expansion, they struggle in downturns and recessions when consumers rein in their spending on discretionary products and services.

Supply Chain Disruptions: Consumer discretionary companies face challenges from snarls in supply chains. For instance, during the COVID-19 pandemic, many companies in the sector faced months of disruptions from border closures, shipping delays, and cargo backlogs. These issues can increase costs. Companies can try to pass those expenses on to consumers, but there's no guarantee they'll accept price increases.

Inflation: Rising prices can deter potential customers from purchasing discretionary items, particularly if consumer confidence starts to fall. Many economists have forecast a recession for the U.S. economy in 2023 after inflation hit a 40-year high in June 2022. Additionally, price hikes in other areas of the economy can have a contagion effect on consumer discretionary stocks. For example, a rise in airline tickets due to higher fuel costs can weaken demand for hotels.

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As of the date this article was written, the author does not own any of the above stocks.

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