Top Consumer Discretionary Stocks for June 2023

LNW, RIVN, and MNSO lead peers for value, growth, and momentum, respectively

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Top stocks in the consumer discretionary sector for June 2023 include MINISO Group Holding Ltd., Carrols Restaurant Group Inc., and Wingstop Inc., which have soared by as much as 225% in the last year, significantly outpacing the broader market.

Consumer discretionary stocks as a group, as represented by the Consumer Discretionary Select Sector SPDR Fund (XLY), have risen about 5% over the last year. The Russell 1000 Index, a broad measure of U.S. large-cap stocks, has climbed 3% during the same period.

Below are the top consumer discretionary stocks for this month, classified by best value, fastest growth, and most momentum. Benchmark data above are as of June 8, while all figures below are as of June 5, 2023.

These are the consumer discretionary stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated. But they also could turn out to be a classic case of a value trap.

Source: YCharts

These are the top consumer discretionary stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.

Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.

Source: YCharts

These are the consumer discretionary stocks that had the highest total return over the past 12 months.

Source: YCharts

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.

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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