The prolonged pandemic has clearly taken its toll, on consumers as well as corporations. Profits remain below year-ago levels, and people aren't overwhelmingly confident about the future.
Investors can't come to sweeping conclusions about crimped consumerism, though. In some cases, folks are coming up with the funds needed to buy the things they want badly enough. Crocs (NASDAQ:CROX), Lowe's (NYSE:LOW), and JD.com (NASDAQ:JD) are among the discretionary stocks best positioned to benefit from this strangely selective spending. Here's a closer look at what makes each name something of a standout.
Crocs is in its element
The company known for its funky (but ultra-comfortable) foam clogs may have been fighting for its life a decade ago, but Crocs found its groove again in 2016. Not counting the pandemic-crimped first and second quarters of this year, revenue has grown every quarter year over year since the last quarter of 2017. Ditto for operating income.
The rebound is built on the convergence of several trends, not the least of which is customization. Although consumers were decorating their Crocs clogs years ago, the effort wasn't organized. Now it is. The company's website sells Jibbitz charms as part of the online purchase process, and even if on an unsponsored basis, patches, pins, and stick-ons of all sorts are readily available to make each customer's shoe unique. CEO Andrew Rees has also said branding partnerships with companies ranging from KFC to fashion label Vera Bradley to pop star Justin Bieber have all helped turn its shoes into a must-have fashion statement.
The other key trend? Comfort. Consumers want it. The trend was already in place before the pandemic took hold, but with working at home becoming commonplace now, people are insisting on function more than form.
It remains to be seen just how long this new normal will last. The shift should translate into a rising tide for at least another year, lifting Crocs with it in a way it wasn't able to in 2020. Supply chain disruptions have capped last year's revenue growth to what should be around 6% once the company posts its fourth-quarter numbers. But, with the dust finally settling on coronavirus-related headaches, analysts are modeling 14% sales growth for 2021.
All the pieces are falling into place for Lowe's
Home improvement retailer Lowe's has historically taken a backseat to rival Home Depot in terms of size and progress. But this year could mark a turning point, at least on the growth front.
The driver for this growth is rooted in the company's "Total Home" strategy, which was unveiled a little less than a month ago. The plan aims to "enhance customer engagement and grow market share by intensifying our focus on the Pro customer, expanding our online business, modernizing installation services, improving localization efforts and elevating our product assortment," the company said in a statement.
There's nothing particularly unique or surprising about the program. Indeed, Total Home arguably only provides a holistic framework for initiatives already under way. For instance, Lowe's has focused on a more encompassing omnichannel experience for over a year. In August, the company announced it would eventually offer tool rental service from coast to coast, hopefully appealing to more professional contractors. But the advent of Total Home suggests the company finally understands that every facet of any consumer-facing business has to work together as a whole. This may have been Lowe's biggest missing link.
Analysts seem to think the overarching initiative is going to make a difference. Although 2021's sales are slated to slump nearly 4% from 2020's growth pace of more than 22%, per-share earnings are projected to improve 7%. That's more profit growth than Home Depot is expected to muster. In fact, we may have already seen evidence that Lowe's is ready to outpace its bigger peer. Lowe's third-quarter same-store sales were up 30%, while Home Depot's comparable U.S. sales grew a little less than 25%.
A tighter-focused JD.com to help buoy shares
Finally, JD.com has earned a spot on the short list of consumer discretionary stocks to buy as 2021 gets going.
It's not the name investors usually choose when looking for a leading e-commerce pick to play China's growing consumer class. That honor typically belongs to bigger rival Alibaba Group Holding. JD.com shares also soared more than 140% last year and jumped another 10% Tuesday in response to an upgrade from Stifel, leaving some investors worried about profit-taking now. With that move, the stock is less than 5% away from its consensus price target of $99.77. But I think JD shares have more room than that to run, even if they take a few steps back before moving forward again.
I think Stifel analyst Scott Devitt is right that JD.com is benefiting from "a number of secular growth trends to support healthy long-term growth and ongoing margin expansion," not the least of which is user growth and a rebound in eastern Asia's consumerism. Devitt isn't alone in his optimism, either. The vast majority of analysts following the company rate it at as a buy, and this crowd is modeling average revenue growth of 23% this year and per-share profit growth of more than 40%. What was missing from their forecasts is a higher consensus price target. Now that Stifel has upped its target to $105, though, it's easier for other analytics outfits to follow suit. Don't be surprised to see more raised targets and upgrades of JD soon.
The clincher: JD.com is looking to shed its minority stake in a cloud computing and artificial intelligence business. The entry into these markets was well intended at the time, but may be proving more of a distraction than an opportunity now. By letting go of it and focusing even more time and money on its e-commerce and retail support business -- and drone deliveries in particular -- the e-commerce outfit may end up dishing out some pleasant earnings surprises in the foreseeable future.