The Consumer Discretionary sector, as measured by the S&P 500 Consumer Discretionary Sector performance, surged approximately 30% in 2024, outperforming the broader market by around 6%. This sector represents a vibrant and high-growth segment of the market, driven by consumer spending behaviour, economic cycles, and product innovation. It encompasses industries such as retail, automobiles, travel & leisure, e-commerce, luxury goods, and home improvement—each benefiting from rising disposable incomes, evolving consumer lifestyles, and technological advancements.
Historically, consumer stocks have performed exceptionally well during bull markets, making them a compelling choice for growth-oriented portfolios. With GDP growth and labour market strength fuelling consumer confidence, the sector remains well-positioned to capitalize on economic expansion and increasing global wealth.
The rapid expansion of the electric vehicle (EV) market has emerged as a major catalyst within the Consumer Discretionary sector. As global automakers accelerate their transition toward electrification, many companies and traditional manufacturers investing in EVs have seen substantial capital inflows. Beyond revolutionizing the automotive industry, the shift to EVs is also driving demand across other adjacent sectors, including battery technology, renewable energy, and smart mobility solutions.
Christopher Tsai, President and Chief Investment Officer of Tsai Capital, highlighted the transformative outlook for EVs in his Q4 2024 investor letter, stating:
“EVs are so much more efficient than gas-powered cars, their adoption will likely follow the same exponential growth trajectory that defines nearly all disruptive technologies. Just as the spinning wheel, steam engine, automobile, cable television, and streaming services were swiftly embraced despite early skepticism, the path toward widespread EV adoption seems clear.”
According to Jordan Michaels, Fidelity Sector Portfolio Manager for Consumer Discretionary, the sector’s performance in 2025 is expected to be influenced by macroeconomic factors, particularly the health of the job market. The trajectory of these stocks will largely depend on the resilience of U.S. consumers and broader economic conditions. If economic growth remains steady and employment remains strong, consumer spending is likely to persist. Furthermore, anticipated interest rate cuts from the Federal Reserve could ease financial pressures, unlocking more cash or credit for delayed big-ticket purchases in home improvement and auto-related categories.
Jordan further emphasized investment opportunities within the sector, noting:
“With the evolving business cycle in mind, interest-rate-sensitive industries, such as auto- and home-related categories, look interesting. Not only have these groups recently sported attractive valuations, but they have tended to lead the market’s advance amid the first signs of lower interest rates because they typically benefit from increased borrowing.”
To determine the 12 best consumer discretionary stocks to buy, we first compiled a list of U.S.-listed companies in the sector with strong fundamentals and a market capitalization of at least $2 billion. We then ranked them based on their potential upside, with the stock offering the highest upside placed at the top. Additionally, we included the number of hedge funds holding stakes in these companies as of Q3 2024.
Note: All pricing data is as of market close on February 12.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A grinning customer being handed a gift card to enjoy their next meal.
Upside Potential: 60%
Number of Hedge Fund Holders: 25
Sweetgreen Inc. (NYSE:SG) is a fast-casual restaurant chain that focuses on serving healthy, made-to-order salads and bowls using fresh, locally sourced ingredients. The company emphasizes sustainability and transparency in its supply chain, appealing to health-conscious consumers. The company is well-positioned to capitalize on the growing trend of health and wellness among consumers, particularly in the fast-casual dining segment.
Citi analyst upgraded Sweetgreen Inc. (NYSE:SG) to Buy on January 10, 2025, raising the price target to $49 from $44 earlier based on optimism around the company’s Infinite Kitchen (IK) expansion and store remodels. His analysis projected store profit growth in the mid-teens by 2029 and nearly 50% upside in DCF valuations, with expectations that management’s strategic pricing initiatives could reshape market perception by 2025. However, on February 12, the analyst revised his outlook, cutting the price target to $43 while he maintained the Buy rating. The downgrade reflects concerns over weaker-than-expected same-store sales (SSS) in Q4 and early Q1 and the concerns were attributed to factors like holiday shifts, winter storms, and wildfires. Analysts cautioned that if Sweetgreen Inc. (NYSE:SG) provides conservative full-year guidance, it could lead to stock volatility, given the company’s high valuation. While long-term optimism remains, near-term headwinds have tempered some expectations.
Overall SG ranks 4th on our list of the consumer discretionary stocks to buy according to analysts. While we acknowledge the potential of SG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
