Investors are attracted to consumer discretionary stocks because they offer the potential for substantial returns, driven by heightened spending on nonessential goods and services during periods of economic expansion.
Given the industry’s tailwinds, investors could consider buying fundamentally sound consumer discretionary stocks: Booking Holdings Inc. (BKNG), Lowe's Companies, Inc. (LOW), and The TJX Companies, Inc. (TJX).
As per the reports by McKinsey, in the third quarter of 2024, optimism regarding the U.S. economy reached its highest point in a year. Consumer Spending in the United States increased to $16.11 trillion in the third quarter of 2024 from $15.97 trillion in the second quarter of 2024.
In addition, U.S. retail sales increased 0.4% month-over-month in October 2024, following an upwardly revised 0.8% gain in September and above market forecasts of 0.3%. Also, the National Retail Federation forecasts a 2.5% to 3.5% rise in 2024 retail sales, reaching up to $5.28 trillion.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best consumer discretionary stocks.
Booking Holdings Inc. (BKNG)
BKNG provides online and traditional travel and restaurant reservations and related services internationally. The company operates Booking.com, which offers online accommodation reservations, and Priceline, which provides online travel reservation services.
BKNG’s trailing-12-month gross profit and EBIT margins of 84.67% and 28.70% are 124.6% and 254% higher than the respective industry averages of 37.71% and 8.11%. Likewise, the stock’s trailing-12-month net income margin of 21.85% is significantly higher than the industry average of 4.08%.
BKNG’s total revenues for the third quarter that ended September 30, 2024, increased 8.9% year-over-year to $7.99 billion. Its operating income came in at $3.18 billion, up 2.4% from the year-ago quarter. The company reported net income of $2.52 billion and $74.34 per common share, both up marginally from the prior-year quarter, respectively.
Analysts expect BKNG’s revenue for the fiscal fourth quarter ending December 2024 to increase 8.3% year-over-year to $5.18 billion. For the same quarter, Street expects its EPS to increase 12.6% year-over-year to $36.02. The company surpassed its revenue and EPS estimates in each of the trailing four quarters, which is promising.
BKNG’s stock has soared 48.8% over the past nine months to close the last trading session at $5185.33.
BKNG’s POWR Ratings reflect its positive outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Sentiment. It is ranked #15 in the 52-stock A-rated Internet industry.
Beyond what is stated above, we’ve also rated BKNG for Growth, Momentum, Stability, and Value. Get all BKNG ratings here.
Lowe's Companies, Inc. (LOW)
LOW operates as a home improvement retailer that offers a line of products for construction, maintenance, repair, remodeling, and decorating, as well as home improvement appliances.
LOW’s trailing-12-month net income margin of 8.19% is 100.4% higher than the industry average of 4.08%. Its trailing-12-month EBIT margin of 12.33% is 52% higher than the 8.11% industry average. Also, the stock’s trailing-12-month EBITDA margin of 14.66% is 28.3% higher than the 11.43% industry average.
During the fiscal third quarter, which ended November 1, 2024, LOW’s net sales were reported at $20.17 billion. The company reported net earnings and earnings per common share of $1.70 billion and $2.99, respectively.
Analysts expect LOW’s revenue to increase 1.5% year-over-year to $84.56 billion, accompanied by a projected 5.8% year-over-year rise in EPS to $12.59 for the fiscal year ending January 2026. Moreover, the company has surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
Shares of LOW have gained 30% over the past year to close the last trading session at $270.11.
LOW’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
LOW has a B grade for Quality. It is ranked #13 out of 57 stocks in the Home Improvement & Goods industry.
In addition to the POWR Ratings highlighted above, one can access LOW’s ratings for Growth, Value, Momentum, Sentiment, and Stability here.
The TJX Companies, Inc. (TJX)
TJX operates internationally as an off-price apparel and home fashion retailer. The company operates through four segments: Marmaxx; HomeGoods; TJX Canada; and TJX International.
On June 7, TJX entered into a definitive agreement for a joint venture with Grupo Axo, S.A.P.I. de C.V., an operator of global brands in Mexico and South America. Under the agreement, TJX owns 49% of the joint venture, and Axo owns 51% of the joint venture. The agreement comprises Axo’s off-price physical store business in Mexico, which includes over 200 stores.
The strategic collaboration with Axo expands TJX’s operations in Mexico and offers opportunities to grow and enhance the country’s leading off-price retailer.
During the third quarter that ended November 2, 2024, TJX’s net sales rose 6% year-over-year to $14.06 billion, and its total segment profit grew 10.2% year-over-year to $1.84 billion. The company’s income before income taxes rose 9.3% from the year-ago value to $1.74 billion.
Furthermore, the company’s net income and EPS came in at $1.30 billion and $1.14, up 8.9% and 10.7% year-over-year, respectively.
Street expects TJX’s revenue and EPS for the first quarter (ending April 2025) to increase 5.7% and 6.8% year-over-year to $13.19 billion and $0.99, respectively. Moreover, the company topped the consensus EPS and revenue estimates in all four trailing quarters, which is impressive.
TJX’s stock has increased 32.6% over the past nine months and 42.7% over the past year to close the last trading session at $127.20.
TJX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
TJX has a B grade for Momentum, Sentiment, Stability, and Quality. It is ranked #20 out of 60 stocks in the B-rated Fashion & Luxury industry.
Click here to access the additional TJX ratings (Growth and Value).
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BKNG shares were trading at $5,276.98 per share on Wednesday afternoon, up $91.65 (+1.77%). Year-to-date, BKNG has gained 50.08%, versus a 29.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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