In this article we’ll check out the top 10 consumer discretionary stocks to buy in 2021, which appear poised to capitalize on an expected jump in consumer spending later this year. To go straight to the top stock picks in the space, check out Top 5 Consumer Discretionary Stocks to Buy in 2021.
The consumer discretionary sector tends to perform poorly during periods of economic stress, as consumers batten down the hatches on their discretionary spending. The unique circumstances of 2020 appear to have had a different impact on the market however.
Consumers countered some of the pandemic lockdowns and travel restrictions by spending more money in areas like durable goods and recreational vehicles, sales in the latter group being up by 8% year-over-year in the second quarter.
The unique market dynamics lead to consumer discretionary stocks actually being among the top performers on the market in 2020, as evidenced by the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY) gaining 27% in 2020.
Top 10 Consumer Discretionary Stocks to Buy in 2021
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It hasn’t been rosy for the entire sector though, as clothing and footwear companies have generally suffered heavily during the pandemic, as have retailers and restaurants. However, it’s those companies that could be poised for much bigger things in 2021, as the sector appears poised for another strong year, gaining 8% year-to-date.
To uncover some of the most compelling ideas in the consumer discretionary sector we turned to Mark Coe’s Intrinsic Edge Capital, a Chicago-based registered investment advisor that manages approximately $954 million in assets as of the end of 2020. The fund has been a big investor in consumer discretionary stocks in recent quarters, with 24% of its 13F portfolio allocated to the sector at the end of Q3.
Intrinsic Edge uses bottom-up research and in-depth discussions with companies’ management to identify the most compelling opportunities in the small- and mid-cap space that are being undervalued in relation to the fund’s in-house modeling. Intrinsic Edge focuses heavily on a few key drivers that have shown the strongest correlation with stock price movement.
The long/short equity fund Intrinsic Edge Market Neutral has delivered compound annual return of 1.96% through April 2020 after declining by 4.04% in early-2020. 2019 was a disappointing year for the fund, as it lost 3.25%, which came on the heels of 9.3% gains in 2018.
We track hedge funds like Intrinsic Edge Capital because their consensus stock picks are extremely profitable investments. The top 10 stocks among hedge funds have returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
Now then, let’s check out the Top 10 Consumer Discretionary Stocks to Buy in 2021, beginning with a little bit of love. Note that all hedge fund data is based on the exclusive group of 800+ funds tracked by Insider Monkey as part of our market-beating investment strategy.
Investors have been in love with couch manufacturer The Lovesac Company (NASDAQ:LOVE) over the last year, as it’s been one of the top performing stocks in any sector with 435% gains. Intrinsic Edge added more LOVE to its 13F portfolio during Q3, buying another 240,194 shares to give it a total of 326,201. LOVE shares have gained another 117% since the end of Q3.
Lovesac’s modular sofas, whose layouts can be customized to suit any occasion (and making them perfect for social distancing), have proven extremely popular during the pandemic. Lovasac’s sales were up by 43.5% year-over-year during its FY21 Q3 driven by strong social media advertising and e-commerce sales. With just a 1% share of the U.S sofa market, there’s plenty of room for further growth in 2021 and beyond.
Intrinsic Edge bought 2,058 shares of STMP during Q3, lifting the size of its ownership position to 37,808 shares. Stamps.com Inc. (NASDAQ:STMP) shares have been another huge performer over the past year, gaining 214%. Stamps.com has grown its revenue by an average of 30% over the past five years and its EBIDTA by 77%.
The online postage vendor was already benefitting from the secular shift toward e-commerce, and that shift has only accelerated during the pandemic. However, the company did forecast a Q4 slowdown in revenue growth and some hedge funds are worried about the difficult comps Stamps.com will face in 2021, which could
Intrinsic Edge sold off 20% of its stake in Brunswick Corporation (NYSE:BC) during Q3, leaving it with a position of 165,842 shares valued at $9.77 million. Brunswick has been yet another strong performer in the fund’s portfolio, posting gains of 43% over the past year.
While Brunswick is perhaps best known for manufacturing bowling equipment, anticipates its Q1 revenue rising by 25% year-over-year. In addition to bowling, Brunswick operates in several outdoor recreation markets that have enjoyed pandemic tailwinds, including the boating market. Brunswick is in the process of expanding its boat production capabilities at three of its plants to keep pace with unprecedented retail demand and low dealer inventory levels.
Similar to the boating market, recreational vehicles have proven extremely popular during the pandemic, pushing Winnebago Industries, Inc. (NYSE:WGO) shares up by 17% over the last year. Hedge funds were buying up WGO shares in droves during 2020, with ownership of the stock up by 87% year-over-year through Q3. Intrinsic Edge owned 221,111 WGO shares valued at $11.43 million on September 30.
One of the 10 Best Small-Cap Stocks To Buy Now, Winnebago has grown its market share to 10.9% as of November 28, 2020, up by 80bps year-over-year. It grew its fiscal Q1 ’21 organic revenue by 22%, while its gross profit margins have been a particular bright spot, rising by 390 bps year-over-year to 17.3% and pushing gross profit up by 74% during that period.
The fantasy sports platform Draftkings Inc. (NASDAQ:DKNG) rounds out the first half of our list of the top consumer discretionary stocks to buy in 2021. Intrinsic Edge owned 195,281 DKNG shares on September 30, though the fund did sell off slightly more than half of its former position during Q3.
While consumer discretionary stocks tend to perform poorly during lean periods, top sin stocks like Draftkings are a notable exception. DKNG shares have gained 349% over the past year as the company continues to expand its geographic footprint and land important marketing deals like its partnership with ESPN, which should lower the company’s customer acquisition costs and could prevent competitors from gaining marketing access to the sports network’s audience.