Investing in Top Consumer Discretionary Stocks

When it comes to shopping, there are things you need and things that are just nice to have. The consumer discretionary sector is in that second category. It includes goods and services that people spend money on when they have a little extra cash available, such as travel, dining at restaurants, or fashion and jewelry.

Consumer discretionary stocks refer to the stocks of companies that make money from consumer discretionary goods. They could be manufacturers, wholesalers, or retailers.

Unlike consumer staples companies, which make necessities, consumer discretionary stocks tend to do well when the economy is strong and poorly when times are tough. Keep reading to learn about the consumer discretionary sector and some top stocks to consider.

1. Nike

Nike has established a dominant position in athletic footwear and apparel, with over half a century of innovation in creating sportswear that appeals to a broad consumer audience. The strength of Nike's business model stems from its product innovation, marketing strength, use of endorsements, and tying the success of high-profile athletes to the company's products.

The company has a long history of outperforming the S&P 500, despite more recent challenges. Long after Michael Jordan left the professional basketball court, Air Jordan shoes remain a mainstay of Nike's business.

Nike's market share of athletic footwear, estimated at around 30%, puts it well ahead of international competitors Adidas (OTC:ADDYY) and Asics (OTC:ASCCF). With the global sportswear company working to play a bigger role in fast-growing areas such as China, Nike still has a lot of potential for growth.

Recently, Nike has struggled with upstart competition, such as On Holding (NYSE:ONON) and Deckers Outdoor's (NYSE:DECK) Hoka brand. The company also seems to have leaned too heavily on digital and direct channels, overlooking its established wholesale relationships with key partners like Foot Locker (NYSE:FL).

Nike has built a strong digital ecosystem around apps such as SNKRS and the Nike Training Club. However, its revenue declined in fiscal 2025 and is expected to do so again in fiscal 2026.

Despite those challenges, it's hard to bet against a company that has led its industry for so many decades. It may take time for the turnaround strategy under new CEO Elliott Hill to play out, but Nike should recover from its recent woes.

2. Starbucks

The coffee company plays a significant role in how a large part of the world's population begins their day. By introducing the European cafe concept to the U.S., Starbucks tapped into consumers' desire to treat themselves to affordable luxuries, and its premium beverages now have a loyal following worldwide.

Starbucks has struggled recently as low-priced competitors have taken market share in China, and consumer demand has been weak in the U.S. Additionally, the company seems to be suffering operationally due to a bloated menu and slow service, especially for Mobile Order & Pay customers.

In August 2024, the company hired Brian Niccol, who led the turnaround at Chipotle (NYSE:CMG), to be its next CEO. Investors are hopeful that Niccol can bring Starbucks back to steady growth and restore the business to its full potential.

As of early 2025, the company had more than 40,000 locations across the globe, and it expects to have 55,000 locations by 2030, indicating no shortage of growth opportunities. Beyond its cafes, the company also has a healthy business selling in-store products, such as bagged coffee and ready-to-drink beverages.

3. McDonald's

McDonald's has come a long way since its heyday in the mid-20th century, and the fast-food colossus has worked hard to keep up with the times. Innovations such as digital menus that automatically change throughout the day, automated kiosks for ordering, online and mobile order capabilities, and delivery options are making McDonald's more accessible than ever.

At the same time, the restaurant chain continues to emphasize value, which keeps customers coming back for more. In 2025, it introduced a new McValue menu with a $5 meal deal and a "Buy One, Add One for $1" option.

Although it's a restaurant chain, the emphasis on value gives it some elements of a consumer staples company. After all, everybody needs to eat, and getting a cheap and convenient meal at McDonald's is easy.

The company also owns much of the real estate that its franchised restaurants occupy. This enables it to collect rent while franchisees do the hard work of running the restaurants.

Even in the ever-changing restaurant industry, McDonald's has found a way to stay relevant, despite weak sales in recent quarters. Investors also like McDonald's for its consistent dividend payments. It has increased payments to shareholders each year since the mid-1970s, making the company a Dividend King. With a payout ratio of around 60% of earnings, McDonald's can comfortably maintain its dividend.

4. TJX Companies

Off-price retail giant TJX Companies has found success in apparel and home goods with a business model that's not easily replicated online. The parent company of TJ Maxx, Marshalls, and HomeGoods obtains discounted brand-name merchandise through close-out sales, manufacturer errors, and order cancellations. It then sells the merchandise at discounts of 20% to 60%.

The company's business has generated wide profit margins and solid growth over the years. It plans to expand to at least 7,000 stores globally, up from about 5,100 today.

TJX is also one of the rare discretionary retailers that delivered solid growth in 2024, helped by its off-price model. Revenue rose 4% to $56.4 billion in 2024, or 6% when adjusted for the extra week in 2023, and earnings per share jumped 10% to $4.26, or 12% when adjusted for the calendar shift, demonstrating the versatility and strength of the company's business model.

5. Walt Disney

This household name in family entertainment has been a staple of U.S. pop culture for generations. The company's theme parks and animated movies are popular everywhere. Today, the company also owns ABC, ESPN, Pixar, Marvel, Star Wars, and Hulu, and it acquired a vast array of assets from Fox in a 2019 deal.

Disney has a number of competitive strengths, including an unrivaled trove of intellectual property and a business model that enables successful movies, such as Frozen, to be spun into multiple business lines, including theme park rides, toys, consumer products, and even live entertainment.

Disney has restructured its entertainment business to make Disney+ its centerpiece, and its streaming business is finally profitable. Disney stock has underperformed for several years now, but the components are in place for success if it can successfully transition to streaming. The company plans to launch a streaming version of the flagship ESPN network in the fall of 2025, which could unleash significant profit growth.

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Pros and cons of investing in consumer discretionary stocks

Like any other sector, investing in consumer discretionary stocks has its pros and cons.

Pros:

• Made up of brands that are familiar to most investors.
• Can be big winners over time.
• Easy to assess their performance.
• Tend to do well in bull markets.
• Competitive advantage can be identified by brand strength.

Cons:

• Among the first businesses to get hit in a recession.
• At risk of black-swan events like the COVID-19 pandemic.
• Competition tends to be high.
• Inflation is a risk.

FAQ

Understanding consumer discretionary stocks

Consumer discretionary businesses cover several industries, but they all rely on consumers spending money that they don't need to spend. Consumer discretionary companies include:

• Makers of furniture, appliances, housewares, and other home furnishings
• Consumer electronics manufacturers
• Apparel and luxury goods companies
• Retailers of various kinds, including department stores, home improvement retailers, electronics retailers, home furnishers, and clothing stores
• Direct-to-consumer retailers that sell goods by catalog, mail, or via e-commerce
• Hotel, resort, and casino operators
• Restaurants
• Cruise operators

Consumer discretionary stock prices tend to rise and fall with the overall economy, making them cyclical stocks. For example, high interest rates put pressure on consumer spending and cool off the economy, presenting a challenge for consumer discretionary companies (although interest rate cuts can encourage growth).

Focusing on well-known brands and industry leaders in this sector is generally a formula for success since the best stocks have long been winners for investors. These companies should also be better able to weather a recession and endure a bear market, since they have deeper pockets and brand equity to fall back on.

Best consumer discretionary stocks in 2025

Several consumer discretionary companies stand out as being among the best in their industries:

The COVID-19 pandemic affected the consumer discretionary sector differently than it did the consumer staples sector, which sells necessities.