2 Iconic Consumer Stocks Are Lighting Up the Market
Two of the market’s strongest sectors on Wednesday were consumer discretionary and consumer staples. To see both sectors roaring ahead simultaneously is a bit unusual.
Consumer discretionary stocks tend to outperform the market during times of economic expansion. This sector is focused on non-essential items — stuff you want, but don’t necessarily need to survive. Brands like Starbucks ($SBUX), Expedia ($EXPE), and DoorDash ($DASH) fall into this category.
Consumer staples stocks are the exact opposite — this is the stuff you need, regardless of the state of the economy. Walmart ($WMT), Kimberly-Clark ($KMB), Clorox ($CLX) and Colgate-Palmolive ($CL) are examples of popular names in this sector. These stocks tend to outperform the market when the economy is cooling.
Charting the Sectors
Looking at the weekly charts for perspective, let’s check out two bellwethers. On the left is the State Street Consumer Staples ETF ($XLP). On the right, we have the State Street Consumer Discretionary ETF ($XLY).
The left chart shows the consumer staples sector ETF trading at an all-time high.
The right chart shows the consumer discretionary ETF not far behind. XLY is attempting to break out of a multi-year consolidation, and was trading less than 1% below its all-time high as of Wednesday afternoon.
We scanned the charts for potential breakout stocks in these two sectors. The goal was to find the best stock in each sector right now. The result was two iconic brands that have caught fire in recent weeks.
Consumer Discretionary: Starbucks
Starbucks’ ($SBUX) turnaround under former Chipotle ($CMG) CEO Brian Niccol appears to be gaining traction. Under Niccol’s back-to-basics strategy, Starbucks simplified its menu and sharpened its focus on customer service.
As a result, same-store sales grew by 7.2% in the most recent quarter.
Shares of Starbucks have gained nearly 16% over the past month. Technically, the area between approximately $107 and $109 (shaded yellow) has been a minefield for the stock, leading to repeated rejections (arrow).
Starbucks succeeded in breaking that resistance, closing at a multi-year high Wednesday. The stock now trades less than 2% away from its all-time high of $111.54, set in 2021.
GRADE: B+
Consumer Staples: Walmart
There are some stocks that have both a unique market position and iconic status.
Starbucks is a good example of this, and so is Walmart ($WMT). One month ago, Walmart was breaking support and falling below its key moving averages.
Then, Walmart shocked the market with a 24% rally over the past month. The world’s largest retailer is suddenly trading like a hot tech stock. Walmart is now about 3% below its all-time closing high of $133.
Walmart has mastered the art of turning its size and scale into profits. The company’s ecommerce division has marked 10 consecutive quarters of growth in excess of 20%, showing that the Bentonville, Arkansas-based retail titan still has room for growth. Walmart is expected to report earnings on November 19.
GRADE: B+
At the time of publication, Ponsi was long WMT and KMB.
