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4 Top Consumer Discretionary Stocks to Watch in July

By Rick Munarriz – Jul 5, 2020 at 2:00PM

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An online consignment specialist, high-margin cruise line operator, trendy discounter, and streaming video pioneer are four companies angling for your money.

This is a challenging time to be buying up consumer discretionary stocks. Between the pandemic and recession, there isn't a lot of money and time to go around after we've squared away the bare necessities. If you're going to buy a consumer discretionary stock, it had better be a company that can stand out in a crowd. 

The RealReal (REAL -0.66%), Royal Caribbean (RCL -13.15%), Five Below (FIVE -0.53%), and Roku (ROKU -0.67%) are some of stocks with strong catalysts to bounce back the next time Wall Street takes a punch to the gut. Let's go over why these are five investments to consider the next time there's a market correction.

Two couples playing on the beach shore with a cruise ship in the background.

Image source: Getty Images.

The RealReal

The luxury goods market seems like a dreadful consumer discretionary niche to be investing into these days, but there's a lot to like when it comes The RealReal's approach. The online platform deals in the consignment of goods, a way for folks to score bargains on secondhand brand-name goods. The RealReal stands apart from others by offering merchandise authentication -- a big deal when folks are paying up for designer handbags, shoes, and other accessories.  

Revenue was on a tear before COVID-19. Revenue soared 49% last year, and gross merchandise volume was clocking in above 30% through the first two and a half months of 2020. Sales fell sharply by mid-March, and revenue slowed to an 11% advance for the entire first quarter. 

Things should get better from here for The RealReal. As folks feel comfortable to shop for designer goods, they're going to turn to The Real Real to get the best deals on authenticated luxury items. Money's going to be tight for others, and they may be tempted to turn to The RealReal to unload some of their brand-name merchandise. 

Royal Caribbean

Cruise lines are scary beasts. Ships haven't been sailing with paying passengers since mid-March, and they're not going to be hitting the open seas until autumn at the earliest. If you have to buy into the niche, your best bet seems to be Royal Caribbean. 

Royal Caribbean isn't the largest player, and that's a good thing since the largest player thrives on first-time cruisers who aren't going to be walking up the gangway anytime soon. Royal Caribbean is the industry's second largest player, but it's also routinely the one putting out the healthiest margins. Analysts don't see any of the cruise lines turning an annual profit until 2022, but Royal Caribbean is the one expected to be the closest to peak 2019 net income levels at that time.    

Five Below

Cheap chic is the name of the game at Five Below, a growing chain of big-box stores that sell a wide range of items that -- true to its name -- are priced at $5 or less. Its fiscal first quarter was understandably brutal. Net sales plummeted 45%, as its stores were closed for most of the fiscal period ending on May 2. Five Below doesn't have a very strong online game, so it suffered during the pandemic lockdown.

Things should get better from here. Five Below has already reopened 90% of its stores as of June 9, and its teen and pre-teen shoppers should flock back to the chain that offers merchandise that's more desirable and trendy than cheap dollar store fare. The chain is growing, and even during the otherwise horrific fiscal first quarter it managed to open another 20 stores to bring its empire to 920 locations. With share buybacks taking advantage of the recent price swoon, a recent online purchase that will help it boost its digital sales, and shrewd expansion into a section with $10 items to broaden its offerings Five Below will be a big winner as young consumers go shopping again this summer.  

Roku 

The best kind of consumer discretionary stocks are the ones that give its customers the best bang for the buck, and it's hard to argue against Roku. The streaming device players cost as little as $30 but are also available on a growing number of smart televisions as the default operating system at no additional cost. 

Roku is free as an ecosystem with thousands of streaming services available through its hub. Roku makes money by selling ads as well as collecting a piece of the action when folks sign up for premium promoted services. The platform's popularity is booming with its 39.8 million active users, 37% ahead of where it was a year earlier. Usage and, more importantly, revenue per user are growing briskly, resulting in a 73% surge in platform revenue. The streaming revolution was already well under way before the pandemic, but folks spending more time at home is speeding up the migration process. Roku is also one of the handful of seemingly coronavirus-proof stocks to actually be trading lower year-to-date, giving it some healthy upside into the second half of 2020.

Rick Munarriz owns shares of Roku. The Motley Fool owns shares of and recommends Roku. The Motley Fool recommends Five Below and recommends the following options: short January 2022 $120 calls on Five Below and long January 2022 $115 calls on Five Below. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$37.90 (-13.15%) $-5.74
Five Below, Inc. Stock Quote
Five Below, Inc.
FIVE
$137.67 (-0.53%) $0.73
Roku Stock Quote
Roku
ROKU
$56.40 (-0.67%) $0.38
The RealReal, Inc. Stock Quote
The RealReal, Inc.
REAL
$1.50 (-0.66%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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