The consumer discretionary sector is experiencing a dip due to recent weaker sales, inflation, and previous overbuying. However, the sector shows growth in essential purchases and has adapted to inflation.

Considering the potential for the sector to rebound, investors could consider buying fundamentally strong consumer discretionary stocks such as McDonald’s Corporation (MCD), NIKE, Inc. (NKE), and Starbucks Corporation (SBUX) on the dip.

The consumer discretionary sector benefits strongly from economic recovery and rising disposable incomes. It includes non-essential but desirable items like luxury goods, dining, and household products.

Meanwhile, inflation is easing, with the PCE price index expected to fall to 2.5% in June from 2.6% in May. The Federal Reserve might launch two rate cuts this year to manage price pressures and support strong consumer spending. This easing inflation and supportive policy may create a favorable environment for the consumer discretionary sector.

On top of it, with increased spending power and stable prices, the global quick-service restaurant market is projected to hit $1.78 trillion by 2030, growing at an 11.2% CAGR. The National Retail Federation also forecasts a 2.5% to 3.5% rise in retail sales for 2024, reaching up to $5.28 trillion, indicating promise for the consumer discretionary sector.

Considering these encouraging trends, let’s take a look at the fundamentals of the three best consumer discretionary stocks to take advantage of the dip.

McDonald’s Corporation (MCD)

MCD operates and franchises its restaurants internationally. The company’s restaurants offer hamburgers and cheeseburgers, chicken sandwiches and nuggets, fries, salads, shakes, frozen desserts, sundaes, soft serve cones, bakery items, soft drinks, coffee, and beverages and other beverages, as well as breakfast menu.

In terms of the trailing-12-month net income margin, MCD’s 33.36% is 582.7% higher than the 4.89% industry average. Similarly, its 45.84% trailing-12-month EBIT margin is 486.6% higher than the 7.81% industry average. Its 24.50% trailing-12-month levered FCF margin is 348.8% higher than the 5.46% industry average.

During the first quarter that ended March 31, 2024, MCD’s revenues grew 4.6% year-over-year to $6.17 billion. Its operating income rose 8.1% from the year-ago value to $2.74 billion. The company’s non-GAAP net income and non-GAAP EPS came in at $1.96 billion and $2.70, up 1.1% and 2.7% from the previous year’s quarter, respectively.

For the quarter ended June 30, 2024, MCD’s revenue is expected to increase 2% year-over-year to $6.63 billion. Its EPS for the quarter ending September 30, 2024, is expected to increase 3.7% year-over-year to $3.31. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has declined 3% to close the last trading session at $251.56.

MCD’s positive outlook is reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Stability and Quality. It is ranked #16 out of 41 stocks in the Restaurants industry. To see MCD’s Growth, Value, Momentum, and Sentiment ratings, click here.

NIKE, Inc. (NKE)

NKE designs, develops, markets, and sells athletic footwear, apparel, equipment, accessories, and services worldwide. The company provides athletic and casual footwear, apparel, and accessories under the Jumpman trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks.

In terms of the trailing-12-month EBIT margin, NKE’s 13.03% is 66.7% higher than the 7.81% industry average. Likewise, its 11.10% trailing-12-month net income margin is 127.1% lower than the industry average of 4.89%. Also, the stock’s 1.36x trailing-12-month asset turnover ratio is 36.5% lower than the industry average of 1x.

NKE’s revenues for the fiscal fourth quarter ended May 31, 2024, stood at $12.61 billion. Its gross profit rose marginally year-over-year to $5.63 billion. Additionally, the company’s net income and EPS increased by 45.5% and 50% over the year-ago quarter to $1.50 billion and $0.99, respectively.

Analysts expect NKE’s EPS and revenue for fiscal 2026 to increase 14.4% and 5.8% year-over-year to $3.61 and $51.85 billion, respectively. It surpassed the Street EPS estimates in each of the trailing quarters. Over the past three months, the stock has declined 23.5% to close the last trading session at $71.90.

NKE’s POWR Ratings reflect solid prospects. It is ranked #12 out of 34 stocks in the Athletics & Recreation industry. It has a B grade for Quality. To see NKE’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.

Starbucks Corporation (SBUX)

SBUX operates as a roaster, marketer, and retailer of specialty coffee worldwide. The company operates through three segments: North America; International; and Channel Development.

In terms of the trailing-12-month EBITDA margin, SBUX’s 19.48% is 72% higher than the 11.33% industry average. Its 11.38% trailing-12-month net income margin is 132.9% higher than the 4.89% industry average. Additionally, its 14.16% trailing-12-month Return on Total Assets is 233.4% higher than the 4.25% industry average.

For the fiscal second quarter that ended March 31, 2024, SBUX reported net revenues of $8.56 billion. Its net earnings attributable to SBUX came in at $772.40 million and $0.68 per common share. Moreover, its operating income for the period was $1.10 billion.

Street expects SBUX’s revenue for the quarter ended June 30, 2024, is expected to increase marginally year-over-year to $9.25 billion. Its EPS for the quarter ending December 31, 2024, to increase marginally year-over-year to $0.98. Over the past month, the stock has declined 6.9% to close the last trading session at $74.39.

SBUX’s favorable outlook is reflected in its POWR Ratings. It has a B grade for Quality. It is ranked #26 in the Restaurants industry. Beyond what we have stated above, we have also rated SBUX for Growth, Value, Momentum, Stability, and Sentiment. Get all the ratings of SBUX here.

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MCD shares were trading at $252.06 per share on Wednesday afternoon, down $1.99 (-0.78%). Year-to-date, MCD has declined -13.95%, versus a 15.16% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...

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