The 12 best consumer discretionary stocks to buy for the rest of 2022

Consumer discretionary stocks may be among 2022's most challenging places to invest in. But these picks could overcome several sector headwinds.

  • By Will Ashworth,
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Consumer discretionary stocks had both a great 2021 and a middling 2021. Their 27.2% return across the year is far above what one would normally expect … but that came in a rip-roaring year for the S&P 500 (.SPX), and only ended up being less than a percentage point better than the broader index.

And expectations were high for consumer discretionary stocks coming into 2022. Fidelity's outlook for the group suggested consumers flush with cash were ready to venture out of their homes after two years of pandemic-related disruptions. The sector was also projected to get a boost from affluent households that were ready to spend on high-end apparel.

Unfortunately, the sector is encountering headwinds in the form of rising inflation and the end of COVID-related stimulus, says Wells Fargo Advisors analyst Brian Postol.

"Consumer discretionary companies are feeling those repercussions, along with rising input costs and worker shortages," Postol adds. But despite the "ominous storm clouds currently hovering above the consumer, we believe blue skies are faintly appearing in the distance, and brighter days will return."

And with the sector down more than 30% for the year-to-date, investors have plenty of opportunity to find some solid consumer discretionary plays at a bargain.

Here, we explore our 12 best consumer discretionary stocks to buy for the rest of 2022. This list includes equities that are highly beloved by Wall Street analysts, showing solid fundamentals and are boasting attractive valuations.

Data is as of July 11. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analyst ratings courtesy of S&P Global Market Intelligence, unless otherwise noted. Stocks are listed by analysts' consensus recommendation, from lowest to highest.

Asbury Automotive Group

  • Market value: $3.6 billion
  • Dividend yield: N/A
  • Analysts' ratings: 5 Strong Buy, 0 Buy, 2 Hold, 0 Sell, 1 Strong Sell
  • Analysts' consensus recommendation: 2.00 (Buy)

Asbury Automotive Group (ABG) is one of the largest automotive retailers in the U.S. Based in Georgia, it has 148 dealerships in 15 states, representing 31 different brands of vehicles.

Its revenue in 2021 was $9.8 billion, 38% higher than in 2020. Helping boost its top line was a series of acquisitions made throughout the year, with Asbury purchasing 48 new dealerships and 7 used dealerships. After accounting for its divestitures in 2021, the acquisitions added $5.8 billion in annualized revenue.

And ABG's strong growth has continued in 2022. The company's first-quarter results included an all-time record for earnings per share (EPS) of $10.38, 117% higher than Q1 2021. On an adjusted basis, earnings arrived at $9.27 per share, up 98% year-over-year. And revenue soared 78% to $3.9 billion.

In terms of its biggest brands, the top three by new vehicle revenue in the first quarter were Toyota at 18%, Stellantis (17%), and Honda and Lexus tied at 10% apiece. Approximately 41% of ABG's sales are imports, 30% are domestic, and 29% are luxury.

While Parts & Service and Financing & Insurance only accounted for 18% of Q1 2022 revenue, the two segments generated 59% of Asbury's gross profit. The return from these two parts of its business is vital to its success.

Asbury plans to grow sales to $20 billion by 2025. It will do so through acquisitions, same-store sales growth and Clicklane, the company's digital platform for buying, owning, servicing and selling vehicles.

Even with its solid fundamental growth, ABG is one of the most attractively valued consumer discretionary stocks. It currently trades at 4.7 times forward earnings and 1.7 times book value – both well below their five-year averages.

Lululemon Athletica

  • Market value: $36.0 billion
  • Dividend yield: N/A
  • Analysts' ratings: 14 Strong Buy, 5 Buy, 9 Hold, 1 Sell, 1 Strong Sell
  • Analysts' consensus recommendation: 2.00 (Buy)

Lululemon Athletica (LULU) holds a dominant position in the athleisure market. But economic jitters have investors reluctant to jump on one of the best consumer discretionary stocks for the rest of 2022 and beyond.

However, there are plenty of bulls to be found. BofA Global Research's retailing softlines analysts reiterated their Buy rating in early June. They also have a $400 target price on the stock, representing implied upside of 42% over the next 12 months or so.

"We continue to have confidence in Lululemon's diversified growth profile and view current price levels as a particularly attractive buying opportunity for one of the best growth stories in retail," the analysts say.

As a result of its strong showing in the first quarter, LULU raised its full-year 2022 earnings guidance by 18 cents to $9.43 per share at the midpoint of its guidance. BofA expects its 2023 EPS to be $10.90. At current prices, that has it trading at 25.8 times this forward earnings estimate.

While that might seem excessive, it's much less than its five-year average of 42.5x forward earnings. Moreover, as BofA states, investors' jitters have created a solid risk/reward scenario for LULU stock.

Between China, e-commerce and its men's business, Lululemon's got plenty to take it to BofA's $400 price target and beyond.

Pool Corp.

  • Market value: $14.9 billion
  • Dividend yield: 1.1%
  • Analysts' ratings: 5 Strong Buy, 1 Buy, 3 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.78 (Buy)

As we move into the dog days of summer, Pool Corp. (POOL) is one business that likes it hot and humid. If you're unfamiliar with the Louisiana-based company, it is the world's largest wholesale distributor of swimming pools and related outdoor living products.

It sells over 200,000 products from 2,200 vendors through more than 410 sales centers in North America, Europe and Australia. Since its initial public offering (IPO) in October 1995, it has delivered an average annual return of 29%.

Over the past five years, POOL has grown its revenues by 15%, compounded annually to $5.3 billion in 2021 from $2.6 billion in 2016. The exciting part about Pool's business is that only 10% of its revenue is outside the U.S. This provides the company with an exceptional growth opportunity outside its domestic market.

In 2021, Pool achieved some amazing results, including a record operating margin of 15.7%, as well as a return on invested capital of 43.9% – almost double what it was five years ago.

William Blair analysts Ryan Merkel and Paul Dirks have an Outperform rating on the consumer discretionary stock, which is the equivalent of a Buy.

"We encourage investors to buy the dip as POOL is one of our highest-quality stocks," the analysts say. "With 80% of sales tied to maintenance, repair and remodel, a No. 1 market position, and a large addressable market, we believe EPS can consistently grow 15%-20% long term."

Etsy

  • Market value: $10.9 billion
  • Dividend yield: N/A
  • Analysts' ratings: 12 Strong Buy, 2 Buy, 7 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.76 (Buy)

Thanks to Etsy's (ETSY) positioning as a marketplace for buyers and sellers of one-of-a-kind items, it continues to be a long-term winner in the eyes of analysts. However, with the recession drumbeat getting louder, analysts are scaling back their near-term enthusiasm.

Needham analyst Anna Andreeva recently downgraded Etsy to Hold from Buy because of these economic storm clouds. Over the long term, however, she sees great potential for the platform to become the home for more frequent shoppers. So patient investors looking for the best consumer discretionary stocks should be rewarded.

Meanwhile, Oppenheimer analyst Jason Helfstein lowered his price target on the stock to $120 from $140 due to weaker conversion numbers. Still, the analyst maintained an Outperform rating on Etsy stock due to its long-term market position, adding that the company is still growing at a pre-COVID pace.

Raymond James analyst Rick Patel agrees that Etsy has a strong long-term positioning. He recently initiated coverage on ETSY with an Outperform rating.

"We think near-term stock upside could be limited as consumers shift spend to new areas and settle into a new normal; rising interest rates are also an overhang for tech," Patel writes in a note. But, he adds that the stock's nearly 61% year-to-date decline has created "an attractive entry point to own what we view as one of the highest quality names in digital commerce."

In June, Etsy announced it would invest at least $25 million annually to create the Etsy Purchase Protection program. Starting on Aug. 1, the program will provide full refunds to buyers whose purchases don't match the online description, arrive damaged, or fail to arrive. The move provides buyers with an additional trust factor when dealing with small businesses.

It's a smart move for a company building trust and confidence in its brand.

Chipotle Mexican Grill

  • Market value: $36.1 billion
  • Dividend yield: N/A
  • Analysts' ratings: 17 Strong Buy, 7 Buy, 7 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.68 (Buy)

In June, Chipotle Mexican Grill (CMG) became one of the largest U.S. restaurant chains to start accepting cryptocurrencies at its nearly 3,000 locations across the country. Partnering with the cryptocurrency payment network Flexa, CMG now accepts nearly 100 cryptocurrencies for payment.

While crypto has taken a severe beating in 2022, the restaurant chain continues to lead when it comes to innovation. However, according to estimates, only 4% of restaurant customers are expected to pay using crypto over the next 24 months.

In another sign of innovation: Chipotle announced on June 16 that it is testing Mexican cauliflower rice at 60 of its restaurants in Arizona, Southern California and Wisconsin.

"After the success of our Cilantro-Lime Cauliflower Rice last year, we are eager to test a second plant-powered start for any go to order," said Nevielle Panthaky, vice president of Culinary at Chipotle, in the company's press release. "Our guests crave real, plant-based options so we developed a new flavor packed recipe that aligns with our food with integrity standards."

While the plant-based food craze has mellowed in recent months, Chipotle's audience is probably more receptive to new products in this space. As a result, investors can expect another successful test from the company.

Chipotle has certainly been flourishing on the fundamental side. In the first quarter, it saw revenues jump 16% on a year-over-year basis, while same-store sales grew 9% and earnings per share increased 6.3%. In addition, CMG opened 51 new restaurants in the quarter, with 42 equipped with its Chipotlane drive-thru window.

Analysts certainly think CMG is one of the best consumer discretionary stocks out there.

"We believe CMG shares have among some of the best upside in Restaurants, supported by medium long-term growth catalysts, and near-term resilience," says UBS Global Research analyst Dennis Geiger. He has a Buy rating on the stock with a target price of $2,100, representing potential upside of nearly 63%.

D.R. Horton

  • Market value: $25.8 billion
  • Dividend yield: 1.2%
  • Analysts' ratings: 13 Strong Buy, 3 Buy, 6 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.68 (Buy)

Like most housing stocks, D.R. Horton's (DHI) share price has gotten a bit of a haircut in 2022. It is down more than 32% for the year-to-date. However, that makes America's largest homebuilder by volume since 2002 even more attractive to investors to investors looking for the best consumer discretionary stocks.

Still, rising interest rates and higher prices on virtually everything means new home sales are bound to slow in the near term.

Through the first half of fiscal 2022, net sales orders fell 3% over last year, to 45,862 homes. However, the sale value of those homes increased 18% to $18.0 billion. DHI now has a sales order backlog of 33,859, down 6% from the year-ago period. Again, the sale value of this backlog increased 15.5% to $13.3 billion.

So for now, the rising prices for DHI's homes have more than made up for any softness in its business. Given the difficulties of finding people to work with, that's not the worst thing to happen to the company. On the contrary, it gives D.R. Horton some breathing room.

Despite rising mortgage rates, the company remained confident in its business as of late April when it reported fiscal second-quarter results.

"With 33,900 homes in backlog, 59,800 homes in inventory, a robust lot supply and strong trade and supplier relationships, we are well positioned to grow our consolidated revenues by more than 25% in fiscal 2022," said Donald Horton, chairman of the board at D.R. Horton, in the company's press release.

For all of 2022, DHI expects revenues of $35.7 billion at the midpoint of its guidance, 28% higher than in 2021. It also said it will close approximately 89,000 homes this year, 8.5% more than it did last year.

Additionally, DHI's average closing price in the six months ended March 31 was $370,300, well above 2021's average closing price of $323,300. As long as closing prices remain elevated, a single-digit sales slowdown won't hurt its business too badly.

It's the largest for a reason.

Tapestry

  • Market value: $7.8 billion
  • Dividend yield: 3.1%
  • Analysts' ratings: 14 Strong Buy, 5 Buy, 6 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.68 (Buy)

Tapestry (TPR) is the retail holding company for Coach, Kate Spade and Stuart Weitzman.

In 2021, TPR launched its Acceleration Program that utilizes data and analytics to create a better omnichannel experience for consumers. Tapestry feels that doing so will deliver greater profitability and free cash flow generation.

So far, so good. In fiscal 2021, Coach – which remains Tapestry's largest banner – had $4.2 billion in revenue, accounting for 74% of TPR's total sales. Its products are sold in 939 corporate stores across more than 50 countries worldwide.

Approximately 54% of Coach's revenue in fiscal 2021 was from women's handbags. Just 18% was generated from its men's business. As for geographic distribution, North American sales represented 58% of total revenue, with China coming in second at 22%.

"The company is benefiting from its direct-to-consumer (e-commerce and company owned retail) channels which represent over 90% of sales," says Argus Research analyst Kristina Ruggeri. "The model provides stronger margins than wholesale channels and allows TPR to use extensive first-party data and analytics to better understand customer preferences."

Ruggeri has a Buy rating on the retail stock with a target price of $40, implying expected upside of nearly 30% current levels.

And for investors seeking out consumer discretionary stocks with shareholder-friendly initiatives: Tapestry said it will return $1.9 billion to shareholders in fiscal 2022 through dividends and share repurchases – about 25% higher than expected. Plus, its board of directors approved a new $1.5 billion stock buyback program for fiscal 2023.

In fiscal 2022 (June year-end), Tapestry expects sales of $6.7 billion, with growth in the high teens over last year. It expects earnings per share to be up 20% from 2021 to $3.45.

Brunswick

  • Market value: $5.2 billion
  • Dividend yield: 2.1%
  • Analysts' ratings: 9 Strong Buy, 4 Buy, 3 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.63 (Buy)

Cantillon Capital Management is one of the biggest shareholders of recreational product maker Brunswick (BC). At the end of March, the New York-based hedge fund held 4.12 million shares, representing 5.44% of Brunswick's outstanding shares.

Cantillon manages almost $20 billion in assets. Brunswick is Cantillon's 23rd largest position out of its 37-stock portfolio. It is one of only two consumer discretionary stocks held by the hedge fund, with human resources solutions provider Trinet (TNET) being the other.

As for the company itself, it continues to sell lots of boats. Of course, it's possible that interest rates and inflation could slow sales, but for now, it's business as usual.

In the first quarter, BC delivered record results, with net sales of $1.7 billion, 18.3% higher than a year earlier. It also saw a 10.1% jump in adjusted operating income to $268 million. As a result, Brunswick increased its 2022 guidance to $6.95 billion for revenue at the midpoint of its guidance and earnings of $10.05 a share.

Looking at a geographic breakdown of sales, the U.S. accounts for 69% of revenue, followed by Europe (13%), Canada (7%) and Asia-Pacific (7%). In Q1 2022, its Canadian revenues jumped 25% year-over-year, three times the U.S. growth rate.

Stifel analyst Drew Crum admits that there are some macro headwinds facing Brunswick that could persist later into the year (supply-chain disruptions, higher input costs, adverse weather), but he "remains positive in our fundamental outlook." He adds that the consumer discretionary stock's valuation is attractive.

Indeed, following BC's 31% year-to-date decline, shares are trading at just 7 times forward earnings, well below their five-year average.

Deckers Outdoor

  • Market value: $7.0 billion
  • Dividend yield: N/A
  • Analysts' ratings: 9 Strong Buy, 1 Buy, 3 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.54 (Buy)

Deckers Outdoor (DECK) currently has a billion-dollar brand with its UGG boots. It sold $1.98 billion in fiscal 2022 (March year-end), 15.4% more than in 2021.

Its second-biggest brand is HOKA performance footwear. In fiscal 2021, the brand had sales of $571.2 million. In fiscal 2022, HOKA's revenue increased 56% to $891.6 million. Deckers expects revenue for this brand to hit at least $1.2 billion in its current fiscal year, representing year-over-year growth in the mid-to-high 30% range.

"With our in-demand brands, flexible operating model, and strong balance sheet, Deckers is well positioned to drive continued top-line growth and high levels of profitability," said Steve Fasching, chief financial officer at Deckers, in the company's fiscal Q4 press release.

UGG and HOKA have become quite the tandem in just a few short years. Deckers acquired HOKA in 2013 when it had only $3 million in sales. Management initially thought it might be a $100-million brand. It's certainly achieved that and more.

UBS analyst Jay Sole has a Buy rating on DECK stock with a $540 target price, providing investors with plenty of upside potential over the next 12 months.

"HOKA is one of the world's fastest growing footwear brands," Sole says. "We forecast it delivering a 30% five-year sales CAGR [compound annual growth rate] and this is the main driver of our 17% five-year earnings per share CAGR forecast for DECK."

Sole adds that "Deckers' strong sales and EPS growth outlooks justify a 24x P/E for the stock. Yet, it trades at just 13x FY1 EPS, mainly because of macro concerns."

As consumer discretionary stocks go, Deckers is one of the best from a growth perspective.

Hilton Grand Vacations

  • Market value: $4.4 billion
  • Dividend yield: N/A
  • Analysts' ratings: 2 Strong Buy, 2 Buy, 0 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.50 (Strong Buy)

Hilton Grand Vacations (HGV) made a transformational acquisition last August when it acquired Diamond Resorts International for $1.4 billion in stock. The combined entity has 154 resorts and luxury properties with 710,000 timeshare owners.

Hilton issued 34.5 million shares of its stock to pay for the deal. It also said it expected to generate $125 million in run-rate synergies by August 2023.

How's the acquisition working out for Hilton?

In May, the company announced record first-quarter results. As part of its announcement, Hilton raised its guidance for all of 2022. It now expects its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to be $975 million at the midpoint of its guidance, up from $925 million. It also raised its expected cost synergies from its acquisition to $150 million.

As a result of its raised guidance, Jefferies analyst David Katz (Buy) increased his HGV revenue estimates for both 2022 and 2023. He now expects sales of $3.60 billion and $3.97 billion, respectively.

"The fundamental strength in the quarter coupled with the progress integrating Diamond, as demonstrated by the significant increase in guidance and capital returns, should be positives for the story and the shares," Katz wrote in a note. "Notwithstanding the market volatility, the fundamental positioning of HGV and timeshare in general, should prove favorable compared with our coverage overall."

The analyst also has a price target of $69, implying expected upside of 88% over the next 12 months or so for the travel stock.

Mercadolibre

  • Market value: $33.2 billion
  • Dividend yield: N/A
  • Analysts' ratings: 14 Strong Buy, 8 Buy, 2 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.50 (Strong Buy)

Mercadolibre (MELI) has lost more than half its value in 2022. The most recent hit to its share price was in mid-June when Amazon.com (AMZN) announced that it was launching Marketplaces in Chile and Colombia.

Both Chile and Colombia are part of the e-commerce and payment provider's Other Countries segment. In Q1 2022, the segment's revenue accounted for 5.1% of MELI's $2.2 billion in total sales. However, Brazil is by far the company's most important country in Latin America, accounting for 55.7% of its revenue.

So while the announcement makes good news, Amazon's entry into these two markets will have little effect on MELI's overall business – which is showing impressive growth.

For instance, Mercadolibre's total revenue in the first quarter increased 67% year-over-year, excluding currency. Plus, its e-commerce business had a gross merchandise volume (GMV) of $7.7 billion, 32% higher than the year earlier, and its payment business had a total payment volume (TPV) of $25.3 billion, up 81% over Q1 2021. And its unique active users at the end of March were 81 million, 15.7% ahead of last year's number.

However, the most important number from the first quarter was its pre-tax profit. MELI earned $111 million in the first quarter before tax, up from just $10 million in the year-ago period.

Its Argentina segment contributed more profit than Brazil on less than half the revenue.Plus, MELI's revenue in Argentina more than doubled on a year-over-year basis in Q1, showing that it's definitely punching above its weight.

The company's fintech division is also impressive. At the end of 2021, Mercadolibre had a loan portfolio of $1.7 billion. By the end of the first quarter, it had grown 42% to $2.4 billion. Its loan portfolio growth was driven higher by consumer loans (53% of loans) and credit cards (19%).

MELI is trading at 4.5x sales, its lowest multiple in the past decade and less than one-third its five-year average. It's time to be greedy when others are fearful, especially when it comes to the best consumer discretionary stocks out there.

Caesars Entertainment

  • Market value: $8.2 billion
  • Dividend yield: N/A
  • Analysts' ratings: 13 Strong Buy, 2 Buy, 0 Hold, 0 Sell, 0 Strong Sell
  • Analysts' consensus recommendation: 1.13 (Strong Buy)

Caesars Entertainment (CZR) became the largest casino operator in the U.S. when Eldorado Resorts acquired Caesars Entertainment for $17 billion in July 2020. Today, Caesars operates 52 properties in 16 states with 55,700 slot machines, 2,900 table games and 47,700 hotel rooms.

Jefferies has Caesars as one of its Franchise Picks, the stocks it has the highest conviction about. In mid-June, analyst David Katz (Buy) had plenty to say about the casino operator.

"The necessary elements for the shares to reach our [$121 price] target involve operating execution, M&A execution and capital allocation, all of which CZR and its predecessor company ERI have performed well," Katz wrote in a note. "Further, we believe the fundamental environment for Las Vegas and regional casinos is expected to sustain its recent strength in demand, pricing and profitability."

The analyst believes the company's free cash flow – the money left over after a company has covered all the capital expenditures needed to run its business – during the next 12 months should be between $8 to $10 a share. Based on a multiple of 10x FCF, that gets the stock's per-share valuation to $80 to $100. Katz also expects Caesars' digital business to reach profitability in 2023, which values the digital business at $32 a share.

CZR has grown its digital business in the past three years from $26 million in 2019 to $337 million in 2021. And the company's $3.9 billion purchase of U.K.-based bookmaker William Hill in April 2021 has paved the way for the digital business's growth. As a result of the acquisition, Caesars now operates sportsbooks in 21 states.

In Q1 2022, Caesars Digital had negative revenue of $53 million. That's due to the promotional expenses paid to bettors for its newly launched Caesars Sportsbook in New York, Louisiana and elsewhere. But long term, Katz believes the digital business will turn profitable and calls any weakness in CZR stock "an opportunity."

CZR was one of the top-performing S&P 500 stocks of the pandemic bull market, but shares are down nearly 60% for the year-to-date to trade at less than 1.0x sales, half their five-year historical average. This gives investors the chance to pick up one of the best consumer discretionary stocks at a big discount.

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