Consumer-centric companies are generally volatile buys for the long term. While consumer spending is a big focus in the U.S. because it is a great macroeconomic indicator, several factors impact it. These factors include job stability, inflation, income, interest rates and taxes. The state of the economy, as well as the confidence people have in it, are big factors as well.
Although real wages have been reduced recently, with inflation coming off of all-time highs, consumer spending is expected to increase. Additionally, with summer on the way, spending in home improvement stores will increase, because consumers try to take on home-improvement passion projects when the weather’s nice.
Regardless, the three companies selected today have great financials, as well as great growth potential regardless of the time of year. As I said, with consumer spending forecast to increase, now is the perfect time to invest in these three consumer stocks.
Costco Wholesale (COST)
Costco Wholesale (NASDAQ:COST) is an internationally known wholesale-style superstore. It provides consumers the option to purchase goods in higher quantities than regular stores, thereby increasing the money they save. It also has Costco Business Centers, which are stores that cater to businesses. However, their main focus is consumer sales.
COST’s financials are great. While its profit and operating margins are low (2.83% and 3.76%, respectively), this isn’t a matter of concern. The bulk of its profits come from the sales of memberships, as it is a member-only chain. This is somewhat reflected in year-on-year quarterly revenue and earnings growth. COST revenue grew by 9.1%, while earnings grew by 29.1% in the same period. Additionally, a beta of 0.77 indicates that this company is a stable pick.
The company is well-known for the use of loss leaders, such as the $5 rotisserie chicken and $1.50 hot dog-and-soda combo meal. These deals get consumers in the door after which they are more likely to spend more than planned. This has played a part in its growth with same-store sales up 7% this quarter. This has become a popular meme on social media, with multiple accounts making fun of this. Yet COST also has a loyal fanbase, and at the moment, has no serious risks, making it a buy.
Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill (NYSE:CMG) is among the best-known Mexican fast-casual chains in the U.S. It also operates internationally, with stores in Canada and Europe. The U.S., though remains its largest market. After its 50-to-1 stock split, the stock corrected by 10%, making it the perfect time to jump in.
CMG stock is trading at $61.58 with a market valuation of $84.57 billion. The company’s financials and growth are solid with revenue and earnings increasing by considerable amounts. CMG has a profit margin of 12.70% with an operating margin of 16.54%. It also has a return on equity of 44.37%, indicating management’s effectiveness. While quarterly revenue and earnings are up 14.1% and 23.2% year-over-year, the company has come under fire recently. Reduced portion sizes have led to customers boycotting the brand or simply walking out mid-order. This represents a serious risk for the chain, especially as this reputation becomes more well-known but management is taking steps to counter this development.
Regardless, analysts are predicting stock price growth of 7.5% for the rest of this year, indicating its shares are likely to continue growing, making it a buy.
Home Depot (HD)
Home Depot (NYSE:HD) provides consumers access to home-improvement goods. While its main market is the U.S., it also operates internationally. The range of products offered is vast, from garage doors to toilets. It also serves construction workers, carpenters or any other professional engaged in building and home improvement services.
The company has a solid profit and operating margin sitting at 9.79% and 13.95%, respectively. This is likely due to its bare-bones design. Like Costco, the store is the warehouse itself. Management effectiveness is off the charts with Yahoo Finance reporting a return on equity of 1,362.97%. While revenue and earnings have fallen slightly this quarter, this dip isn’t indicative of a long-term trend.
A hike in its dividend by management puts focus on the company’s cash flow and is indicative of a bullish future. Analysts are predicting share price growth of 14.88% through the remainder of this year. While the company does have competition from stores like Lowe’s (NYSE:LOW), recent moves such as the acquisition of SRS Distribution make the stock a worthy buy.
On the date of publication, Achintya Pasricha did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in LOW.
