Why Consumer Discretionary Stocks Could Hold Solid in 2021

Even in an economic downturn, consumer discretionary items have a valuable place. Will the stocks hold solid for investors in 2021?

Rachel Curry - Author

Apr. 9 2021, Published 2:22 p.m. ET

In a time of crisis, creature comforts hold great value. While many leisure purchases might be off the table for years, people are itching for entertainment, style, and consolation. Despite demand, a backup supply of toilet paper isn't enough to soothe the soul. That's where consumer discretionary purchases come into play.

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Some experts suggest that discretionary stocks aren't the play in this stage of economic recovery due to their high prices, but there are many subsectors poised for continued growth. 

All about consumer discretionary stocks

Overall, consumer staple stocks represent products or services that people can't live without. Think staple groceries and essential services. They're necessary (or staple) to society.

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On the other hand, consumer discretionary stocks represent non-essential, luxury, and leisure-based items. The act of spending money on these items is up to the consumer's discretion, hence the label.

Discretionary stocks have historically expressed a cyclical demand pattern, which means it's better to buy them at certain times of an economic cycle. You don't want to buy in at the peak and watch your returns sit below your cost basis for years. 

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Solid consumer discretionary stocks to consider in 2021

Despite the fact we're in the midst of recovering from the onset of the COVID-19 pandemic (while looking forward to potential inflation, no less), discretionary stocks still have the potential to deliver healthy returns. 

Here are some of the most prominent discretionary stocks poised to have a good year:

  • Starbucks (NASDAQ:SBUX): Shares are already up 9.07 percent YTD. In the long term, investors haven't been disappointed. Also, an automatically reinvested 1.6 percent dividend yield can increase returns for retail investors.
  • Peloton Interactive Inc. (NASDAQ:PTON): Shares have seen their ups and downs in the past year, but overall, Peloton is winning. The trailing one-year returns are at 323.27 percent and YTD lows show a smart time to dip in.
  • TJX Companies Inc. (NYSE:TJX): Owner of TJMaxx, Marshalls, HomeGoods, and more, TJX is positioned well in the modern market. The stock has done well since its 2016 inception, with almost half that capitalization growth coming in the last 12 months.
  • eBay Inc. (NASDAQ:EBAY): E-commerce plus secondhand makes for a smart positioning. Interested investors would be wise to wait for a dip to maximize long-term returns.
  • Chewy Inc. (NYSE:CHWY): YTD lows make it a smart time for a Chewy investment. The Amazon for pets might be discretionary, but it feels like a staple as more pet parents indulge in purchases meant for their animals.
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Individual stocks aside, funds (like the Invesco S&P SmallCap Consumer Discretionary ETF and the Consumer Discretionary Select Sector SPDR Fund) offer a more balanced portfolio that poses reduced risk.  

Not all discretionary companies are created equal.

As an example, cruise lines are a consumer discretionary sub-sector that might not be smart to dive into just yet. The industry was essentially squashed during the COVID-19 pandemic and is still working on building a re-entry plan. On the one hand, stocks like Royal Caribbean (NYSE:RCL) are priced comparatively low, but it's hard to tell when shares will recuperate.


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