3 Top Consumer Discretionary Stocks to Watch in November

It might seem like a challenge these days to choose a consumer-discretionary stock for your portfolio. Economic weakness is making consumers think twice before opening their wallets to buy clothing or other extras. And the ongoing coronavirus pandemic is limiting their desire to browse around in store (which often drives unplanned purchases).

At the same time, the holiday season is right around the corner. We shouldn’t expect the same level of sales we’ve seen in past years, but the holidays are still likely to lure shoppers to stores or spur them to spend more online. Which companies will benefit? Those with strong brands and those offering skittish shoppers a lot for their money. Here’s my selection of stocks to keep your eye on this month.

A woman does yoga on a purple yoga mat in front of her computer.

Image source: Getty Images.

Lululemon Athletica

Lululemon (NASDAQ:LULU) is a leading example of a company with brand power. We can see that in online sales figures and the speed of its recovery from one quarter to the next. Net revenue dipped 17% year over year in the fiscal first quarter as most stores were closed amid the coronavirus outbreak. At the same time, direct-to-consumer sales surged 68%. In the fiscal second quarter, the company reported a 2% increase in net revenue, and online sales soared 155%.

It’s clear that Lululemon customers continue to shop with the company, but they’re opting for the digital channel instead of in-store. As the health crisis drags on, many shoppers prefer avoiding crowds, and Lululemon is reinforcing this online relationship. Over the summer, the company said it would acquire home-fitness company Mirror to add to its own offerings of online workout classes. And the company has sped up investment in its omnichannel operations with improvements to its website and fulfillment capabilities.

Lululemon’s online focus isn’t a short-term move. The company predicts some shifts in consumer behavior may not be temporary. At the same time, Lululemon hasn’t abandoned earlier goals, including the quadrupling of its international business by 2023.

Lululemon shares are up nearly 50% so far this year, but the 2020 holiday season should be a productive one for this athletic apparel brand.

Starbucks

Starbucks (NASDAQ:SBUX) is another company with notable brand power. The number of 90-day active members in the coffee giant’s loyalty program slipped to 16.3 million during the early days of the health crisis as many locations closed and consumers stayed home. By the end of the fiscal fourth quarter in late September, that number rebounded to 19.3 million. That’s up 10% year over year and is nearly back to the pre-crisis level of 19.4 million.

Sales have suffered this year due to the crisis, but a recovery is underway. U.S. same-store sales and China same-store sales were down 40% and 19%, respectively, in the fiscal third quarter. In the following quarter, the declines shrunk to 9% and 3%, respectively. The U.S. and China are the company’s biggest markets, so the progress in both is significant.

Like Lululemon, Starbucks is making efforts to give customers what they want right now — and possibly well into the future. The coffee company is focusing on the contactless experience. Starbucks launched curbside pickup at 800 U.S. locations and will increase that to about 2,000 stores by the end of the 2021 fiscal year.

Starbucks shares have bounced back about 60% since the March market crash and are up slightly year to date. I don’t expect a big jump in the stock this year, but considering Starbucks’ pace of recovery, an investment today should pay off long term.

Ross

Now, here’s a riskier stock to watch, considering the current environment. You can’t shop at Ross Stores (NASDAQ:ROST) online. You have to visit one of the off-price retailer’s more than 1,500 locations to take advantage of its low prices. That’s why any recovery will be slower for Ross than for companies with robust digital operations like Lululemon and Starbucks.

In the second quarter ended Aug. 1, the company’s sales slid 33% year over year to $2.68 billion. About 50% of Ross stores are in California, Florida, Texas, and Arizona — states with rising coronavirus cases at the time.

Of course, shoppers are opting more and more for e-commerce this year, and that shift isn’t about to end. But once the coronavirus crisis wanes, shoppers may return to Ross for the same reasons as they have in the past: the deals and the “treasure hunt” experience. Ross’ annual sales have been climbing for more than a decade, and recent expansion may bring customers back. Ross opened 39 new locations across the country in October, bringing its total for the year to 66.

Ross is set to report fiscal third-quarter earnings on Nov. 19, but I’m most interested in seeing how the company fares over the holidays. While awaiting recovery, Ross remains financially healthy. The retailer ended the last quarter with about $3.8 billion in cash and equivalents.

Ross shares are down 20% year to date. Are they as much of a deal as the products on the company’s shelves? Maybe. A glimmer of recovery in the final months of 2020 would be a good reason to consider this retail stock.

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