Consumer Discretionary Stocks to Watch In a Hot Jobs Market

The drop in the U.S. Jobless Claims yesterday added confidence to consumer sentiment. Indeed, the number of people applying for unemployment benefits in the U.S. fell for the third straight week. That's good news for American workers but potentially bad news for investors hoping the Fed will reduce rates soon.

That said, increased consumer confidence usually results in more spending on discretionary items such as entertainment, travel, and dining out. And that leads to higher revenue and profits for companies in the consumer discretionary sector, making some potentially attractive investment opportunities.

In this article let's look at some consumer discretionary stocks that we think serious long-term investors should have on their radar.

McDonald’s Corporation (MCD)

McDonald's Corporation is a multinational fast-food retailer serving over 63 million people daily. The company was founded in 1940 by Richard and Maurice McDonald. The company is headquartered in Chicago, Illinois, U.S. MCD employs about 150,000 employees.

The company operates in more than 100 countries and today sells various types of fast foods, including Big Mac, McDouble, Cheeseburger, Happy Meal, World Famous Fries, and Egg McMuffin.

McDonald's operates a variety of eateries, including Drive-Thru, McDrive, McCafé, McExpress, and McDonald's Next, all of which provide counter service, as well as drive-through and walk-through service with seats inside and occasionally outside.

MCD's latest annual dividend yield is 2.31%, and it has a 5-year dividend growth rate of 47.78%. The company's latest declared dividend is $1.52 and is set to be paid on March 15, 2023. What’s more, the company has continuously increased its dividends for 46 straight years and is a part of the elite Dividend Aristocrats.

Recent Financials

McDonald’s Corporation’s Q4 Revenue was reported at $5.926 Billion, 1.39% lower than the same period last year. Net Income grew to $1.903 Billion, 16.15% higher than in the same period the previous year. EPS was reported at $2.59 and beat mean estimates by 5.28%.

Analyst Recommendations

Analysts issued McDonald’s Corp a “Moderate Buy” rating based on 5 Strong Buys, 4 Moderate Buys, 3 Holds, 2 Moderate Sell, and 1 Strong sell from analysts. MCD's mean target price is $289.50, with a high target of $320.00 an upside of 19.15%.

Recent Developments

McDonald’s Introduces Plant-Based McNuggets - McDonald's is debuting plant-based McNuggets made from peas, corn, and wheat with a tempura batter, developed with Beyond Meat, in Germany. McDonald's has been selling a McPlant burger developed with Beyond Meat since 2021. This is to provide customers with alternative options and will be dependent on customer demand. 

Lowe’s Companies Inc. (LOW)  

Lowe's Companies, Inc. is a diversified American company specializing in home improvement.

In 1921, Lucius Smith Lowe founded the company. The company currently has over 300,000 employees and serves over 19 million customers weekly. This home improvement giant has over 1,700 stores in the United States and over 450 stores in Canada.

Numerous products are available from the company for building, maintaining, repairing, remodeling, and decorating. It also offers home improvement products, including gardening and lawn care tools, outdoor living appliances, lumber, and more. In addition to these, it also offers extended protection plans, repair services, and installation services in various product categories through independent contractors.

LOW’s latest annual dividend yield is 2.16%, with a 5-year dividend growth rate of 125.56%. The company's next dividend announcement is expected to be in the 2nd-3rd week of May according to historical disclosure patterns. LOW has continuously increased its dividends for 60 straight years and is a part of the elite Dividend Kings.

Recent Financials

Lowe’s Companies Inc.’s Q4 Revenue was reported at $23.479 billion, which is 1.02% higher than the same period last year. Net Income was down to $154.00 million due to a pre-tax non-cash asset impairment charge of $2.1 billion related to its Canadian retail business. EPS was reported at $2.28 and beat consensus estimates by 3.17%.  

Analyst Recommendations

Analysts issued LOW a “Moderate Buy” rating based on 5 Strong Buys, 4 Moderate Buys, 3 Holds, 2 Moderate Sells, and 1 Strong Sell from analysts. LOW's mean target price is $231.77, with a high target of $278.00 an upside of 42.49% from the company’s last trading price.

Recent Developments

Lowe’s Partners with Klein Tools Brand - Lowe's has partnered with Klein Tools to offer its wide selection of Klein Tools products in the home improvement retail channel. The partnership will bring a significant presence of the iconic tool brand to Lowe's electrical and tool departments. Klein Tools products, including hand tools and electrical test and measurement tools, will be available in Lowe's stores and on Lowes.com in the second half of 2023, followed by a multi-year rollout of innovating products.

 Genuine Parts Company (GPC)

Genuine Parts Company manufactures and sells automotive and industrial replacement parts. The company was founded in 1928 and today, the company is headquartered in Atlanta, Georgia, U.S.

GPC has over 52,000 active employees and operates in over 10,400 locations in 15 countries. The company’s operations are divided into three divisions:

The Automotive Parts Group division distributes spare parts, accessories, and services throughout the United States, Europe, and Mexico. It is the largest division of GPC. In North America, this segment sells the parts under the NAPA brand name.

The Industrial Parts Group division provides over 10 million industrial replacement parts and associated supplies. More than 170,000 MRO (maintenance, repair, and operations) and OEM (original equipment manufacturer) clients from various industries in North America and Australia are served by this segment.

The Electrical/Electronic Materials Group division provides process materials, production supplies, and fabricated parts. This segment operates under the name EIS, Inc. 

The company’s annual dividend yield is 2.22%, and has a 5-year dividend growth rate of 32.59%. Their latest declared dividend was $0.95 and is set to be paid on April 3, 2023. GPC has continuously increased its dividends for 67 straight years and is a part of the elite Dividend Kings.

Recent Financials

Genuine Parts Company’s Q4 Revenue was up 14.99% $5,523 billion from the same period last year. Net Income shrunk to $251.98 million, 1.57% lower from the same period last year. EPS was reported at $0.39 and beat mean estimates by 5.28%. EPS was reported at $2.05 and beat consensus by 7.89%.

Analyst Recommendations

Analysts issued GPC a “Hold” rating based on 5 Strong Buy, 4 Moderate Buy, 3 Holds, 1 Moderate Sell, and 1 Strong Sell. GPC's mean target price is $176.57, with a high target of $200.00, an upside of 17%.

Recent Developments

GPC Announces 2 New Officers - Genuine Parts Company announced their newly appointed President and Chief Operating Officer, William P. Stengel, and Senior Vice President and General Counsel Christopher T. Galla, who have taken the new roles. Both will report directly to Paul Donahue, Chairman and CEO.

Final Thoughts

In conclusion, higher employment numbers can be a positive signal for investors looking to invest in consumer discretionaries. With employment numbers on the rise, it's clear that consumers will have more disposable income to spend on discretionary items. The only question is: is now the time to take advantage of the trend and potentially reap the rewards of increased consumer spending?

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