13 best consumer discretionary stocks for 2021

Consumer discretionary stocks could have plenty of room to run in 2021 as the economy (and America) normalizes. These are 13 picks to watch.

  • By Jeff Reeves,
  • Kiplinger
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Consumer discretionary stocks are inherently cyclical investments, meaning they rise and fall with broader economic trends. After all, the very nature of a "discretionary" purchase means you're making a choice to spend the cash.

In 2020, a lot of attention was on consumer staples stocks that were reliable performers during the pandemic. Particularly with folks spending more time at home, grocery store purchases seemed a pretty sure thing.

But now that vaccines are starting to roll out and there is optimism that 2021 will look a lot different than last year, investors have begun to engage with consumer discretionary stocks that may provide upside if and when things get back to normal.

Here are 13 of the best consumer discretionary stocks for 2021. Most have decent share momentum right now, based on decent performance during a challenging 2020. Some even used the COVID-19 disruptions to their advantage, and are now set up for what could be a very big year.

If you're looking for consumer-facing plays in 2021, this wide-ranging list of top companies might have something worth putting your shopping cart.

Data is as of Jan. 28. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks listed in alphabetical order.

1-800-Flowers.com

Market value: $2.1 billion

Dividend yield: N/A

If you were looking to say "I love you" in 2020, chances are you considered spending a few bucks via 1-800-Flowers.com (FLWS) to send a care package in the age of social distancing.

But FLWS stock was not just a flash-in-the-pan pandemic play, as evidenced by a big run of 37% since Dec. 1.

That growth is thanks to continued strong results, including recent revenues for the first quarter of the company's fiscal Q1, which gapped up more than 50% year-over-year. Part of the reason this business is sticky is that while it's pretty easy to comparison-shop for clothing or electronics at any online merchant, few other companies have a nationwide network of florists and delivery services to compete with the 1-800-Flowers platform.

The challenge, of course, is that a lot of the business on FLWS is seasonal, so the upcoming Valentine's Day bonanza is an important measure for whether this growth will continue to stick. But investors should be encouraged that after shares cooled off in October, they came roaring right back. This is a hint that strong results could again be in the works for this consumer discretionary stock.

Amazon.com

Market value: $1.6 trillion

Dividend yield: N/A

It's difficult to talk about the consumer sector without including Amazon.com (AMZN) as a big part of that conversation.

The dominant e-commerce portal for most of the world, AMZN continues to defy naysayers who think it has grown so big that it can't keep growing quickly.

Consider that this fiscal year, revenue is projected to grow 35% to a staggering $380 billion. Add to that the expectations on Wall Street for another 18% growth in the top line in 2022. No wonder the stock is one of four trillion-dollar tech stocks, and continues to widen its lead over the also-rans at a breakneck pace. Share prices surged more than 70% over the last 12 months, yet analysts still think there's about 20% upside based on current price targets.

To be fair, there are real concerns for Amazon in the form of growing backlash to this kind of scale. There's a recent drive to unionize in an Alabama warehouse, and in late 2020, the European Union brought antitrust charges against the tech giant.

But AMZN has defied gravity before, and it's difficult to believe consumers turn away from this e-commerce powerhouse in the near future regardless of these risks.

Callaway Golf

Market value: $2.5 billion

Dividend yield: N/A

One of the few hobbies that actually got a big tailwind from the pandemic, golfing is having a bit of a renaissance right now as folks have picked up the sport in earnest once more. And as new duffers get ready for warmer weather, the time is perfect for many of them to upgrade their starter set to the higher-quality products offered by Callaway Golf (ELY), including Big Bertha drivers, Odyssey putters and Ogio bags and gear.

Adding to the potential momentum is the recent acquisition of high-tech driving range company Topgolf, which combines a bar-like atmosphere with quality food and drink alongside microchipped balls that allow golfers to score points by aiming for targets. If you've ever been to a Topgolf facility, it is a marked upgrade above just teeing off from a regular driving range for a half hour.

Next fiscal year, revenue is set to surge almost 80% thanks to the combination of this new business line and a tailwind from the pandemic. Shares have rallied more than 30% over the last three months in anticipation of these strong results. But the majority of analysts who cover ELY remain in the Buy camp, seeing still-higher prices for this consumer discretionary stock in 2021.

Deckers Outdoor

Market value: $8.2 billion

Dividend yield: N/A

Footwear giant Deckers Outdoor (DECK) shined in 2020, with returns of more than 65% over the past 12 months thanks to a strong brand and direct-to-consumer model.

With loyal customers eager for its Ugg boots and Teva sandal brands, Deckers was able to command premium prices – but more importantly, it attracted folks to its internal e-commerce engine even as third-party retailers at the mall took a hit. That didn't just prop up revenue, but generated higher margins in the process.

Consider that last spring, online sales more than doubled even as Americans were forced to forgo the mall. And with projected revenue growth of 13% in the next fiscal year, investors can expect this operational momentum to continue.

Deckers isn't just resting on its laurels, however, as it has put a lot of energy into a new line of healthy leisure products, led by its Hoka One One running shoes. Sales aren't even close to dominant brands like Nike (NKE), but there is plenty of room in this consumer discretionary category to seize on, as evidenced by staggering 83% growth in its Hoka line reported back in October.

General Motors

Market value: $72.8 billion

Dividend yield: N/A

While high-profile electric vehicle stocks get more of the attention these days, legacy automaker General Motors (GM) may be worth a look in 2021.

For starters, GM stock has tacked more than 50% gains over the last year and have roughly tripled from their March lows. The momentum has been strong of late, too – shares are up more than 20% in the past month.

Part of the reason Wall Street has taken notice is a new partnership between GM's Cruise self-driving car subsidiary and Big Tech icon Microsoft (MSFT). This, as well as the company's recent pledge to eliminate gas- and diesel-powered vehicles by 2035, proves that General Motors is not just stuck in the past, but looking to the future.

Furthermore, GM is also pushing into the EV market with other companies, though perhaps in a different way. Namely, its BrightDrop subsidiary has plans to launch an electric delivery van boasting a 250-mile range on a single charge.

These future growth plans are coming amid some strong performance for its biggest-margin vehicles lately, too, including trucks and SUVs. Consider the price of more than half of all the recently redesigned luxury Cadillac Escalade SUVs sold in the fourth quarter was $100,000 or higher thanks to fancy trim options and onboard entertainment gear.

Nobody is going to pretend that General Motors is anything like Tesla (TSLA). But that doesn't mean it can't be one of the best consumer discretionary stocks for investors looking to gain exposure to the automotive industry.

Hasbro

Market value: $12.9 billion

Dividend yield: 2.9%

In 2020, toy giant Hasbro (HAS) manage to strike out despite an environment that would seemingly be tailor-made for a company offering at-home fun. Despite recovering substantially from its March 2020 lows, shares remain down more than 20% from 2019 highs.

That's because Hasbro's core business of dolls and board games was overshadowed by an ill-advised push into the content production business. In the age of streaming video and 1980s nostalgia, Hasbro banked on returning to its glory days some of us may remember with dominant cartoons like G.I. Joe and My Little Pony. Its acquisition of studio Entertainment One in 2019 was supposed to fuel that growth, but it ultimately has just been a money-sucking disappointment as its entertainment segment has continued to bleed red ink.

Here's the good news: Film and TV production ground to halt in part because of the pandemic, and allowed Hasbro to pause and rethink. It also has allowed HAS to reconnect with consumers using blockbuster brands like Play-Doh and Monopoly. With current-year revenue trending up 15% and another 12% growth next fiscal year, 2021 might be the right time to bank on Hasbro getting its entertainment arm in order and building on the success of its more traditional toy brands.

Lovesac

Market value: $814.9 million

Dividend yield: N/A

Lovesac (LOVE) is a niche consumer discretionary stock that designs "foam-filled furniture," which mostly includes bean bag chairs. The store has about 90 showrooms at malls around the country, but business is largely driven by online sales. That has been a boon over the last 12 months, as folks have been both reliant on e-commerce and spending more time at home.

The Lovesac is a little old place where you can get together, relaxing after a tough day of distance learning or telecommuting, and has really caught on.

LOVE is starting to become profitable thanks to big-time revenue growth that is blowing away expectations. For instance, the company recently reported third-quarter earnings of 16 cents per share, up from a 46-cent loss in the year-ago period. Revenue leaped by 44% to $74.7 million compared with $52.1 million the prior year.

There are plenty of discretionary stocks out there that simply deal in commodities that are easily found elsewhere. But it's pretty safe to say there's not a huge number of furniture companies focused on the bean bag market. LOVE might never grow to massive size given this niche, but it does allow it room to run – as evidenced by recent financials and share performance. The stock has sprinted 1,210% since the spring 2020 lows.

Papa John's

Market value: $3.4 billion

Dividend yield: N/A

After hitting all-time highs in 2016, Papa John's International (PZZA) got a bit stale for a few years as competitors took a toll on its sales volume and Wall Street soured on the once-impressive growth story. But now, the pizza shop seems to have gotten its act together once more.

Specifically, Papa John's reported earnings in November that shows sales volumes were up an impressive 18% in its core U.S. market to top analyst expectations. But the numbers alone might obscure a broader success story that began a couple years ago with a big culture change.

Hedge fund Starboard Value took a stake in PZZA and kicked off a number of changes, including ousting divisive founder John Schnatter and installing food industry veteran Rob Lynch to rebuild the brand. The pandemic helped accelerate sales a bit, but the real credit goes to management for setting the company up for success after doing the hard work of rethinking Papa John's.

Shares have climbed nearly 60% in the last year, and there is chatter that the rebuilt pizza chain may now be attractive as an asset for a bigger conglomerate such as Restaurant Brands (QSR) or to a private equity firm that could squeeze out even more value off public markets. If that happens, investors in this consumer discretionary stock could expect an instant buyout premium on top of prior gains.

Peloton Interactive

Market value: $42.4 billion

Dividend yield: N/A

Shares of exercise bike icon Peloton Interactive (PTON) have taken investors on quite a ride over the last year, surging about 360% in 12 months. But after climbing to a market capitalization of roughly $45 billion at its peak, shares have pulled back a little on fears that the stock might have gotten ahead of itself.

Growth-oriented investors shouldn't worry too much about the naysayers, however, as the fundamentals continue to show a stock with a bright future. Specifically, the current fiscal year should wrap up with revenue growth of more than 110%; next year, Wall Street is still expecting robust sales growth of 35%.

PTON just swung to profitability in part because of this big top-line expansion, but more importantly because its model includes regular classes that keep clients as paying customers long after they make the initial purchase of Peloton hardware. The pandemic has proven the power of this sticky revenue stream, and with more people continuing to sign, driving the Peloton community up to nearly 4 million people at present, the momentum should continue in 2021 for this consumer stock.

Shutterstock

Market value: $2.4 billion

Dividend yield: 1.3%

You might not think much of a stock photo service, but Shutterstock (SSTK) is the right business at the right time to play consumer spending trends.

Think of it this way: If you're a local restaurant or retailer who has been forced to build out e-commerce operations, where are you going to get all the images on that new website and app?

The pandemic-related boom in digital licensing has served SSTK well, but it also has a long tail as these clients continue to maintain their properties and build out new offerings. The megatrend of streaming video and audio got another boost as people have been stuck at home, too, and SSTK's archive is also positioned to serve podcasters and videographers.

The numbers tell this growth story in a pretty compelling way, as Shutterstock reported the number of subscribers to its services surged to 255,000 in Q3 compared with just 184,000 in Q3 2019. That's a recurring charge for those customers, so the revenue will be sticky. Even more impressive is that like any good technology-focused company, bigger scale just means bigger profitability. The third quarter's adjusted earnings per share of 80 cents blew away forecasts, and it was about 175% higher than the prior year! That allowed the company to juice its quarterly dividend by 24% to 21 cents per share this year.

If you want to play consumer media trends, then SSTK is a growth story to watch. And with shares up about 50% in the last year, the company has strong momentum as we enter 2021.

Skechers

Market value: $5.5 billion

Dividend yield: N/A

Like the previously mentioned footwear company Deckers, Skechers USA (SKX) has also benefitted from a strong brand and a direct-to-consumer model. But what really makes this sneaker company look like one of the best discretionary stocks for 2021 are the hopes that its international growth plans are finally starting to pay off after many years of big investment.

Specifically, roughly half of the company's sales now coming from beyond America's borders. Furthermore, it continues to see strong growth in these markets, as evidenced by October earnings that showed Chinese sales growth of nearly 24% year-over-year. On top of that, about 25% of revenue comes from high-margin "direct to consumer" e-commerce operations.

There's risk here, of course, given Skechers' history of volatility in shares. Since 2015, the stock has regularly gyrated between the low $20s to the low $40s. But since the March 2020 lows, SKX stock has seen a steady upward climb that has be accompanied by a steady flow of strong earnings reports. That hints that momentum in 2021 could continue as this consumer discretionary stock once again challenges pre-pandemic highs.

TJX Companies

Market value: $78.6 billion

Dividend yield: 1.6%

Best known for its TJ Maxx discount stores, the TJX Companies (TJX) has seen better days as it remains reliant on the brick-and-mortar retail model of the past. However, a number of conditions seem to be setting TJX up for a pretty good year in 2021.

For starters, as the parent of several discount store chains, TJX is primed to benefit from shoppers who are downgrading from more luxuriant stores. With unemployment still elevated at 6.7% compared with a rate of about half that before the pandemic, it's safe to say that on the whole more people are looking to save than looking to splurge in 2021.

TJX shoppers also are the prime target of potential stimulus checks. Many high-income Americans will be left out, and the lower-income customers that frequent discounters will spend that money very quickly on staples – including clothes and housewares sold at TJ Maxx stores.

This tailwind comes as structural changes have helped set TJX up for success, such as the reinstatement of its dividend. Not only is the payout back, reviving interest from income investors, but it's now at 26 per share – a 13% increase over the company's last disbursement, in March before the pandemic hit.

And looking forward, revenue is set to surge 31% according to Wall Street forecasts for the next fiscal year. This hints at a strong present and a bright future for TJX stock.

Winnebago

Market value: $2.2 billion

Dividend yield: 0.7%

The pandemic has proven once again that there really are two economies in the U.S.: one for lower-income folks who have been struggling amid the shutdown, and one for high-income Americans who have been able to work from home and continue saving and spending without disruption.

It's tempting to moralize over this, but as an investor, sometimes the best course of action is simply to follow the profits. And if that's your mindset, Winnebago Industries (WGO) offers some serious profit potential right now.

The RV giant saw big sales growth as dealerships couldn't keep enough of the vehicles in stock following COVID-19-related shutdowns and the obvious appeal of campers for folks looking to get away. Consider Winnebago's Q1 report, which has a laundry list of impressive metrics – including a 35% increase in revenue, margins up 390 basis points and adjusted EPS surging 132%.

While folks will certainly resume some of their typical vacation habits once the pandemic is fully over, we are a long ways away from that point. It seems that many well-off Americans continue to be looking for alternatives via Winnebago as they anticipate another spring break or summer vacation stuck at home with the kids, which will continue to provide a strong tailwind for this consumer stock in 2021.

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