Chronicle Journal: Finance

5 Top-Rated Consumer Discretionary Stocks for 2021

Consumer discrtionary stocks are likely to be very strong in the second half of the year. Patrick Ryan gives his take on why investors should consider buying Nike (NKE), Starbux (SBUX), Target (TGT), TJX (TJX), and Chipotle Mexican Grill (CMG).

There are a couple of reasons to be bullish on consumer discretionary stocks in 2021. Due to the stimulus, on an aggregate level, incomes remained stable. There's also going to be an explosion in demand as the population gets vaccinated.Already, prices for hotel reservations and airfare have started to trend higher for Q3 and Q4 in anticipation of this demand. Additionally, the household savings rate is at an all-time high with so many outlets for spending unavailable.

Below, we provide a look at five top-rated consumer discretionary stocks worth considering in the year ahead: Nike (NKE), Starbux (SBUX), Target (TGT), TJX (TJX), and Chipotle (CMG).

Nike (NKE)

NKE is priced less than a dollar away from its 52-week high. People are snatching up NKE stock as well as its sneakers and other products in the ever-growing push to remain active amidst the pandemic. Though social gatherings have been capped or even completely outlawed in some cases, people are still free to hike, run, walk, and explore the greater outdoors. These activities require high-quality sneakers made by the likes of NKE. It is often argued that NKE is more of an advertising business than a sneaker-maker yet the company’s kicks are well-built and stand the test of time. Though NKE sales fell 4% during the pandemic, its digital sales climbed nearly 80% on a year-over-year basis.

Of the 29 analysts who have reviewed NKE, 26 consider it a “Buy”, two advise holding and only one recommends selling. The average analyst price target for the stock is $162.96, indicating there is nearly 11% upside to go. The POWR Ratings reveal NKE has "A" grades in the Peer Grade, Trade Grade, Industry Rank, and Buy & Hold Grade components. The icing on the cake is NKE's #1 ranking of 36 stocks in the Athletic & Recreation space.

Starbux (SBUX)

Consumers are still choosing to spend their money at SBUX despite the pandemic. SBUX coffee is comparably expensive yet bold in taste, proving quite addictive. Though there are cheaper cups of coffee out there, SBUX customers return time and time as its brew really does taste that much better than most of the other options on the market.

SBUX has a forward P/E ratio of 37.66, a fairly high figure for a non-tech business yet the analysts insist the stock is underpriced, setting an average price target of $108.19. If SBUX hits this price, it will have climbed by nearly 4%. SBUX has "A" grades in the Peer Grade, Trade Grade, and Buy & Hold Grade POWR Rating components along with a #1 ranking of 53 publicly traded companies in the Restaurants category.

SBUX is the country's largest coffee chain yet its comparable sales dropped 40% in the most recent quarter. However, SBUX is pivoting by expanding curbside pickup locations, efficient mobile order/pickup, and adding stores to suburban locations.

Target (TGT)

Investors and analysts alike love TGT. Of the 19 analysts who have studied TGT, none recommend selling, 14 recommend buying, and five advise holding. TGT has a reasonable forward P/E ratio of 22.05 along with a 1.40% dividend.

The POWR Ratings reveal TGT has "A" grades in the Buy & Hold Grade, Trade Grade, and Peer Grade components. Of 40 stocks in the Grocery/Big Box Retailers segment, TGT is ranked third.

TGT will undoubtedly benefit from the economic stimulus payments recently sent out by the federal government, selling that many more consumer products in the months ahead.

TJX (TJX)

Consumers are hesitant to spend on fashion during the pandemic as few people outside of their immediate family see them with any regularity. However, off-price apparel retailers such as TJX are still faring well as their pricing is too tempting to pass up.

Though TJX has a forward P/E ratio of a whopping 159.89, the stock is only $2 away from its 52-week high of $70.96. Don’t let the high forward P/E ratio scare you away as the analysts have given the stock a vote of confidence, setting an average price target of $72.40, meaning there is nearly 6% upside. Of the 15 analysts who have performed a deep dive into TJX, 14 advise buying, one advises holding and none advise selling.

TJX is a POWR Ratings stud with "A" grades in the Buy & Hold Grade, Peer Grade, and Trade Grade components. TJX is ranked second of 77 stocks in the Fashion & Luxury category. TJX blew past analyst expectations in its most recent quarterly earnings. Add in the fact that TJX has reinstated its dividend and investors have even more reason to be bullish on the stock.

Chipotle (CMG)

Investors, take note: CMG plans on opening new locations restricted to the drive-thru and carryout service. This is quite the savvy move on CMG’s behalf, reflecting executives’ understanding that CMG’s target customers aren’t exactly as gung-ho on sit-down dining as their baby boomer parents and grandparents. Furthermore, the move makes sense amidst the lingering pandemic that has made it risky to wait in line and dine in the vicinity of others.

Through CMG’s cilantro-lime cauliflower rice has been panned by diners and critics alike, the moral of the story is CMG is not resting on its laurels. This is precisely why the top analysts are bullish on CMG, setting an average price target of $1,437.85 for the stock. If CMG reaches this level, it will have moved upward by nearly 3%.

Of the 23 analysts who have studied CMG, none advise selling, 13 recommend buying and 10 recommend holding. CMG has "A" grades in the Buy & Hold Grade and Trade Grade component along with a ranking of second out of 50+ stocks in the Restaurants category.

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NKE shares were trading at $143.62 per share on Thursday morning, up to $0.58 (+0.41%). Year-to-date, NKE has gained 1.52%, versus a 1.91% rise in the benchmark S&P 500 index during the same period.



About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.

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