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Investing in Consumer Durables Stocks

By Jeremy Bowman – Updated Jul 19, 2022 at 10:53AM

The best consumer durable goods stocks include those of companies with well-known brands, histories of innovation, strong track records of growth, and wide or expanding operating margins. Like the consumer discretionary sector, the durable goods sector tends to be cyclical since its products are generally expensive purchases that consumers are more likely to make when the economy is strong. During a recession, consumers are more likely to delay buying a new car or a dishwasher. For that reason, the Census Bureau’s monthly durable goods report is closely watched as real-time market data and an indicator of the health of the broader economy. Consumer durables, especially high-priced ones, tend to be discretionary purchases by nature.

Like most industries, consumer durables have been affected by the COVID-19 pandemic. Early in the crisis, manufacturers were forced to slow production due to pandemic protocols and supply chain issues, which weighed on performance. However, demand for many of these products had recovered by the second half of 2020, and sector sales have recovered to pre-pandemic levels. Still, lingering challenges related to supply chain disruptions, especially in China, labor shortages, and chip shortages have remained.

10 biggest consumer durables stocks

The consumer durables sector isn’t as strictly defined as some other sectors, but the list below reflects the biggest durable companies on the market today.

A grouping of assorted appliances.
Image Source: Getty Images

The chart below shows how consumer durables compare with other types of consumer products such as consumer discretionary goods and consumer staples.

Type of Consumer Goods Definition Product Examples
Consumer durables Consumer products that last longer than three years. Cars, furniture, appliances, electronics
Fast-moving consumer goods Goods that are consumed soon after purchase. Food, beverages, paper products, cosmetics, tobacco
Consumer staples Everyday products that consumers depend on regardless of the economic environment. Food, gasoline, medicine, cleaning products
Consumer discretionary goods Goods that are purchased with extra or discretionary income. Non-necessities or luxuries. Travel, entertainment, restaurants

The best consumer durable goods stocks include those of companies with well-known brands, histories of innovation, strong track records of growth, and wide or expanding operating margins. Like the consumer discretionary sector, the durable goods sector tends to be cyclical since its products are generally expensive purchases that consumers are more likely to make when the economy is strong. During a recession, consumers are more likely to delay buying a new car or a dishwasher. For that reason, the Census Bureau’s monthly durable goods report is closely watched as real-time market data and an indicator of the health of the broader economy. Consumer durables, especially high-priced ones, tend to be discretionary purchases by nature.

Like most industries, consumer durables have been affected by the COVID-19 pandemic. Early in the crisis, manufacturers were forced to slow production due to pandemic protocols and supply chain issues, which weighed on performance. However, demand for many of these products had recovered by the second half of 2020, and sector sales have recovered to pre-pandemic levels. Still, lingering challenges related to supply chain disruptions, especially in China, labor shortages, and chip shortages have remained.

10 biggest consumer durables stocks

The consumer durables sector isn’t as strictly defined as some other sectors, but the list below reflects the biggest durable companies on the market today.

Data source: Finviz.com
Company Market Capitalization Industry
Tesla (NASDAQ:TSLA) $708.2 billion Automobiles
Toyota Motor (NYSE:TM) $266.9 billion Automobiles
General Motors (NYSE:GM) $47.4 billion Automobiles
Ford Motor (NYSE:F) $46.6 billion Automobiles
Honda Motor (NYSE:HMC) $46.3 billion Automobiles
Stellantis (NYSE:STLA) $40.4 billion Automobiles
Li Auto (NASDAQ:LI) $38.5 billion Automobiles
Dell Technologies (NYSE:DELL) $35 billion Computer Hardware
HP (NYSE:NPQ) $34.2 billion Computer Hardware
Ferrari (NYSE:RACE) $34.1 billion Automobiles

As you can see, the list consists almost entirely of auto stocks. The automobile industry is one of the biggest in the world and dwarfs other consumer durables subsectors.

Best consumer durables stocks to buy

Consumer durables stocks encompass a wide variety of sectors, and there is significant overlap between consumer durables companies and sectors such as tech, home improvement, and manufacturing.

Below are three of the top consumer durables stocks on the market today. All three demonstrate the range of options available in the consumer durables sector.

Chart by author.
Consumer Durables Stock Ticker Products
YETI Holdings (NYSE:YETI) Coolers, drinkware, and other outdoor lifestyle products.
RH (NYSE:RH) High-end home furnishings company.
Trex Companies (NASDAQ:TREX) Composite decking products.

1. YETI Holdings went public in 2018, and the stock has surprised some investors with its solid performance since then. The company is best known for its well-insulated coolers and tumblers that keep food and beverages cooler much longer than competing products. YETI products tend to be expensive, making the company something of a luxury brand, but it’s also developed a cult-like following for its high-performance products. That has helped it deliver solid growth and allowed it to expand its product line into items such as bags and other cargo gear, camping equipment, and even pet accessories.

YETI may seem to have limited growth opportunities given the size of its addressable market, but the outdoor accessories market is still highly fragmented, giving the company the ability to grow by gaining market share, introducing new products, and expanding internationally.

2. RH is the high-end furnishings company formerly known as Restoration Hardware. Although consumer durable companies are typically thought of as manufacturers or wholesale brands, RH, a vertically integrated retailer, clearly fits the category. It outsources manufacturing, like many other consumer durables companies, but designs and sells its own furniture, such as sofas, armchairs, and coffee tables, at dozens of its “galleries” and online.

Like most home goods stocks, RH thrived during the pandemic, but more recently it has faced headwinds as consumers are becoming more cautious, according to CEO Gary Friedman. Spending is shifting back to services such as travel after home goods were in high demand during the pandemic.

RH has been a long-time winner on the stock market as it’s carved out a unique brand and has also employed a membership model to encourage repeat purchases and reward customer loyalty. More recently, the company has announced plans to expand into other businesses, including launching a streaming service devoted to architecture design and opening its own hotel and restaurant.

Friedman believes that strategy will reinforce and strengthen RH’s reputation for superior design and expand both the core business and the newer service businesses.

3. Trex is the world’s largest manufacturer of wood-alternative decking and railing and has been a top performer for a long time. Its products are more durable than traditional wood-based competitors and offer advantages such as being mold- and mildew-resistant, less likely to fade or stain, and splinter-free.

Trex also has a history of delivering solid revenue growth and profits. In 2022, it’s targeting double-digit revenue growth, despite difficult comparisons with 2021, and is aiming for an incremental EBITDA margin of 30% to 35%. The company recently completed a facility expansion in Virginia that helped increase its production capacity by 70%, paving the way for more revenue growth as it captures pent-up demand.

What about consumer durables ETFs?

Since consumer durables stocks tend to overlay a diverse range of sectors, ETFs, or exchange-traded funds, don't cover them. Even so, there are sector-specific ETFs in homebuilding and autos. Some popular homebuilding ETFs include the following:

Data source: Yahoo! Finance
ETF Ticker Expense Ratio
SPDR S&P Homebuilders ETF (NYSEMKT:XHB) 0.35%
iShares U.S. Home Construction ETF (BATS:ITB) 0.41%
Invesco Dynamic Building & Construction ETF (NYSEMKT:PKB) 0.6%

Among the top holdings of these ETFs are homebuilders such as Lennar (NYSE:LEN) and D.R. Horton (NYSE:DHI); manufacturers such as Masco (NYSE:MAS), which makes plumbing products; and home improvement retailers such as Lowe’s (NYSE:LOW).

If you’re looking for an automotive ETF, the best choice is the First Trust NASDAQ Global Auto Index Fund (NASDAQ:CARZ), which has an expense ratio of 0.7% and counts Tesla, General Motors, and Toyota as its three biggest holdings.

Of the sector indexes available, the S&P 500 Consumer Discretionary Index (INDEX:S5COND) provides the best analog to consumer durables, tracking stocks such as Tesla, Home Depot (NYSE:HD), and Nike (NYSE:NKE).

How to analyze consumer durables stocks

In general, consumer durables companies are manufacturers with consumer-facing brands. Selling to the end consumer differentiates them from manufacturers that sell to other businesses or to institutions such as governments, but they are best analyzed in the same way as other manufacturers.

Investors should consider consumer durables companies' margins, especially their gross margins, which show the percentage of revenue a company keeps after it pays for expenses such as materials and manufacturing labor. Research and development expenses, where applicable, can provide insight into how much a company is investing in its future products.

Finally, the growth rates of revenue and earnings per share are key metrics to consider with any company, and that’s true for consumer durables as well. Investors should prioritize companies that are growing faster than their peers and operating in markets with strong secular growth rates, meaning long-term growth that persists across business cycles. You can use a stock screener to identify companies according to revenue and earnings-per-share metrics.

Are consumer durables stocks right for you?

Consumer durables stocks offer a wide range of choices for investors seeking portfolio exposure to both the manufacturing and consumer-facing sectors. The cyclical nature of consumer durables also makes the sector a good investment choice during an economic boom, although bear markets can also offer good buying opportunities.

Considering the wide variety of consumer durables stocks available, with growth, value, and income stocks all on offer, almost any investor should be able to find a consumer durables stock that suits their investing style.

Jeremy Bowman has positions in Nike and RH. The Motley Fool has positions in and recommends Dell Technologies Inc., Home Depot, Lennar Corporation, Nike, RH, and Tesla. The Motley Fool recommends Lowe's. The Motley Fool has a disclosure policy.

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