The consumer discretionary sector (XLY) was hit hard, down more than 30% YTD. So you’re probably wondering why I would invest in this sector, especially as people avoid becoming spendthrifts in this higher rate environment, as the cost of goods and services continues to increase? For exactly that reason.


As the markets crash, investor sentiment is low, and fear takes investors on a volatile rollercoaster ride. In the words of Warren Buffett, “Be fearful when others are greedy and greedy when others are fearful,” which is why we’ve identified three consumer discretionary industries that have been affected by the bear market and volatility. Each is a solid consideration for a portfolio because they provide several staples and/or services that are near recession-proof.

As recession talks increase, this article provides investors with three options that may prove resilient during times of market downturns. If you’re sitting in cash, a contrarian point of view is a way to consider investments that prevent sitting in cash too long. As billionaire Ray Dalio put it, “Cash is Trash, And Equities Are Even Trashier!” Citing high inflation as a way to lose in the current market environment, he believes the key to navigating the markets is to consider opportune times to buy. As I wrote in Investing For a Potential Recession: Top Consumer Staple Stocks, “It’s about time in the market, not timing the market.” Although this article focused on consumer staple stocks, the same holds true for these three discretionary picks. Focusing on quality stocks with solid balance sheets, prudent management, and overall fundamentals is a way to seek out strong buys to consider in anticipation of a recession.

As fear continues to be the driving emotion moving the markets, people are avoiding big and luxury purchases because the cost of goods and inflation are outpacing wage increases. As such, people are making less money on a real basis. When push comes to shove, consumers will continue to spend money on necessary goods like shelter and food, which are up significantly over the last year, leaving little room for consumer discretionary spending. However, we have found three stocks that, while part of this sector, offer necessary goods and services and should serve to benefit the contrarian investor.

Top Consumer Discretionary Stocks
Unlike consumer staples, consumer discretionary stocks are getting crushed. Down more than 30% YTD, as economies contract, investors tend to flock to lower-risk investments. We see the consumer discretionary space as an opportunity to benefit from the market downturn when others fear the sector. Selecting the right investments that stand to benefit, using our quant ratings is a great way to focus on the below three strong buy recommendations in the consumer discretionary space.

1. H&R Block (NYSE:HRB)
Market Capitalization: $5.46B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 6/24): 2 out of 520
Quant Industry Ranking (as of 6/24): 1 out of 12
H&R Block (HRB), one of the world’s leaders in tax preparation, is a unique consumer discretionary company. Where some would think it leans towards the financial sector given they provide income tax return preparation, it’s part of specialized consumer services. Headquartered in Kansas City, Missouri, the company, through its subsidiaries and many retail office spaces, offers do-it-yourself (DIY) and assisted income tax preparation in the United States, Canada, and Australia.

We selected this stock because, like death and taxes, which cannot be avoided, H&R Block has a consistent track record of serving millions of customers in their tax preparation. It includes more than 60,000 employees over the last year. As proof of their growing success, HRB acquired Wave Financial for $537M in 2019. The rapidly growing payment processing platform aids small businesses with their financial and payroll needs and is a perfect complement to HRB. Wave is a fintech company, and as fellow Seeking Alpha contributor Mike Coppola, CFA writes, “New initiatives to take advantage of technology and digital to increase customer retention and penetration into new markets are just beginning.” This type of initiative showcases a desire to stay relevant and take advantage of how financial services embrace digital transformation. In addition, H&R Block is rated a strong buy through our quant rating system that showcases solid fundamentals, and the company has been on a longer-term bullish trend with A+ momentum.

H&R Block Momentum & Valuation
HRB outshines its sector peers quarterly, and HRB’s prior performance continues to improve.

Year-to-date, the stock is +42%, and over the last year, +43%. Although its valuation grade of C- is less than ideal, the stock still trades at a discount, with forward P/E of 9.92x and a PEG (TTM) -99.12% difference to the sector. The stock is relatively undervalued while strong on metrics like Growth, Profitability, and Earnings Revisions. Let us dive in further to discover why our quant ratings give this stock a strong buy recommendation.

HRB Growth & Profitability
With tremendous free cash flow, twice the yield compared to the S&P 500, A+ Growth Grade, and an overall A- Profitability grade, H&R Block continues to deliver great earnings results. Q3 2022 EPS of $4.11 beat by $0.36, and year-over-year revenue beat by more than 568%, justifying HRB’s track record of paying its shareholders a consistent dividend over the last 32 years. HRB’s forward dividend yield of 3.10% continues to showcase its strong earnings and profitability.

HRB’s strong gross profit margins and EBIT margins above significantly outperform its sector. HRB has consistently increased its market share over the last two years, garnering 300,000 new clients, and has grown its revenue by 10%, up 25% for Q3 2022.

2. Dollar Tree, Inc. (NASDAQ:DLTR)
Market Capitalization: $34.92B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 6/24): 3 out of 520
Quant Industry Ranking (as of 6/24): 1 out of 9

On a longer-term uptrend, DLTR has had tremendous momentum over the last year. Year-to-date, the stock is +11%, and over the last year, up nearly 60%. As showcased by the above Momentum Grades, Dollar Tree outperforms its sector peers. We see this stock as recession-resilient, and we believe the growth and profitability outlook for DLTR to be strong.

Dollar Tree Growth & Profitability
Reporting excellent top and bottom-line beats for Q1 2022 earnings, Dollar Tree analysts gave the company 22 upward revisions within the last 90 days. With an EPS of $2.37 beating by $0.39 and revenue of $6.90B beating by $137.25M, the company’s stock soared +21%. It was the top S&P gainer following the announcement, and its gross profits jumped 19.2% from the previous year.

3. AutoNation, Inc. (NYSE:AN)
Market Capitalization: $6.51B
Quant Rating: Strong Buy
Quant Sector Ranking (as of 6/23): 4 out of 520
Quant Industry Ranking (as of 6/23): 1 out of 26
AutoNation, Inc. (AN) is an auto retailer that offers domestic, import, and luxury vehicles through subsidiaries. In times of recession and market downturn, this sector typically sees plummeting sales because, like most luxury and discretionary spending, items like cars, boats, and trips are the first items to be cut when spending is tight. But, as we are strategic in our strong buy recommendations, AutoNation also offers some cushion in a diversified revenue mix that includes more than 30% of their gross profits from parts and services. For this reason, we believe AutoNation is a true contrarian pick in terms of auto sales while also a strategic contrarian pick that stands to benefit from alternate revenue streams.

When consumers are budget-conscious, and car sales decline, rather than buying new and used vehicles, customers buy the parts or plan to repair their vehicles to save. This is where AutoNation stands to gain even more from this business unit, supplementing as the other segments may see a pullback in sales and financing. Let us dive into the growth and profitability of AN.

AN Growth & Profitability
AutoNation offers customers a broad range of products and services, including new and used vehicles, financing and insurance offerings, and vehicle repair and maintenance. Record Q1 2022 top and bottom-line results were showcased in AutoNation’s recent earnings. With an EPS of $5.78 beating by $0.53, an increase of 103%, and revenue of $6.75B beating by more than 14% year-over-year, 11 analysts revised their earnings.

SOURCE:https://brandspurng.com/2022/06/28/top-3-stocks-for-the-contrarian-investor/

Good!

I don download Bamboo so I can trade stocks..trusting GOD for capital