Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some consumer discretionary stocks to your portfolio but don't have the time or expertise to hand-pick a few, the Vanguard Consumer Discretionary ETF (NYSEMKT:VCR) could save you a lot of trouble. Instead of trying to figure out which consumer discretionary stocks will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF, focused on consumer discretionary stocks, sports a very low expense ratio -- an annual fee -- of 0.14%.
This consumer discretionary stocks ETF has performed well, trouncing the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why consumer discretionary stocks?
Companies offering staples such as shampoo and cheese are defensive, reacting less to market downturns. But stocks of consumer discretionary companies can be valuable performers, too, especially as economies emerge from slumps, as we're doing now.
More than a handful of consumer discretionary stocks had strong performances over the past year. Johnson Controls (NYSE:JCI), for example, doubled in value and is near a 52-week high, with a dividend yield of 1.5%. (It has been paying dividends since 1887!) A "Tier One" supplier to the auto industry with fourth-quarter auto revenue of $5.5 billion, Johnson Controls is also a building-efficiency expert, generating $3.9 billion from that business in its last quarter. Its revenue rose 6%, and the company projected a 30% earnings increase in its next quarter while announcing plans to shake its unprofitable auto interiors business. Not everything about the company looks rosy, but it has won part of a massive $7 billion Pentagon contract and is investing heavily in China.
Priceline.com (NASDAQ:BKNG) surged 85%, with its price now above $1,100 per share. In its third quarter, both bookings and gross profit grew by more than 35% year over year, and it's seeing more impulse buying via its mobile apps. Priceline.com has been growing in part via savvy acquisitions, including Kayak.com, and it has still been able to boost its profit margins. It has also been taking on more debt, with which it can buy back shares or invest in further growth. Priceline.com's hotel division is growing briskly, and many salivate at its international opportunities. Some see plenty of "gas left in the tank."
Las Vegas Sands (NYSE:LVS) jumped 84% and is yielding 2%. The world's largest casino operator (by revenue), Las Vegas Sands has been growing briskly in Asia, where Macau is already six times bigger than the Las Vegas Strip. Las Vegas Sands's third quarter featured estimate-topping double-digit revenue and earnings growth. The stock is not quite dirt cheap, but some still see near-term growth potential in it. Las Vegas Sands has been tackling its debt and rewarding shareholders with dividend growth and stock buybacks.
Lowe's (NYSE:LOW) gained 65% and is near a 52-week high, yielding 1.4%. The home improvement retailer remains behind Home Depot on many measures, such as net income growth, but it has been outperforming it lately. Still, Lowe's is a formidable giant, with more than 1,800 stores and annual sales topping $50 billion. In California, where it was underperforming, Lowe's bought the Orchard Supply Hardware Stores chain. The company reports its third-quarter results on Nov. 20.
The big picture
If you're interested in adding some consumer discretionary stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.