The consumer discretionary sector is thriving, driven by growth in retail nonessentials, home improvement, and leisure items, fueled by e-commerce. This signals a bright future for the sector. Therefore, investors may want to watch leading stocks like Amazon.com, Inc. (AMZN), The Home Depot, Inc. (HD), and Target Corporation (TGT) for potential holiday gains.

U.S. inflation is stabilizing, with the Fed expected to continue rate cuts, signaling optimism for economic recovery. Consumer spending remains strong, backed by rising incomes and strategic retail discounts, especially during the holiday season. Given the positive outlook, it appears to be a favorable time to invest in consumer discretionary stocks, especially for holiday gains.

This holiday season, companies are driving online and offline sales through discounts and increased email marketing. The National Retail Federation forecasts a 2.5% to 3.5% rise in 2024 retail sales, reaching up to $5.28 trillion. Holiday retail sales are projected to hit $960 billion in 2024, signaling strong opportunities for growth in the consumer discretionary sector.

Additionally, investors are drawn to consumer discretionary stocks due to their potential for higher returns fueled by increased nonessential spending during economic growth. As we enter this holiday season, let’s explore the fundamentals of the three top-performing consumer discretionary stocks.

Amazon.com, Inc. (AMZN)

AMZN sells consumer products and subscriptions through online and physical stores in North America and internationally. It operates through three segments: North America, International, and Amazon Web Services (AWS). The company's products offered through its stores include merchandise and content purchased for resale and products provided by third-party sellers.

On October 8, 2024, AMZN’s Amazon Web Services (AWS) announced a partnership with Smartsheet to launch a new connector that integrates Smartsheet data with Amazon Q Business. This collaboration enables users to access project insights and enhance decision-making through AWS’s generative AI-powered assistant, streamlining workflows across multiple business applications.

On September 26, 2024, AWS announced a partnership with Digital Domain to migrate its Autonomous Virtual Human (AVH) technology to the cloud. This collaboration will enhance AVH's scalability and real-time capabilities, allowing more businesses in various industries to utilize advanced virtual human technology.

In terms of the trailing-12-month net income margin, AMZN’s 7.35% is 59.6% higher than the 4.60% industry average. Likewise, its 9.86% trailing-12-month Capex / Sales is 232.8% higher than the 2.96% industry average. Moreover, the stock’s 1.17x trailing-12-month asset turnover ratio is 17.9% higher than the 0.99x industry average.

AMZN’s total net sales during the fiscal second quarter that ended June 30, 2024, increased 10.1% year-over-year to $147.98 billion. The company’s operating income grew 91% from the year-ago value to $14.67 billion. In addition, the company’s net income and EPS came in at $13.49 billion and $1.26, up 99.8% and 93.8% over the prior-year quarter, respectively.

Street expects AMZN’s EPS and revenue for the quarter ended September 30, 2024, to increase 20.8% and 9.9% year-over-year to $1.14 and $157.24 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 44.1% to close the last trading session at $184.44.

AMZN’s POWR Ratings reflect its robust outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

AMZN has an A grade for Sentiment and a B for Momentum and Quality. It is ranked #14 out of 53 stocks in the B-rated Internet industry. Beyond what we have stated above, we also have given AMZN grades for Growth, Value, and Stability. Get all the AMZN’s ratings here.

The Home Depot, Inc. (HD)

HD operates as a home improvement retailer internationally. It sells various building materials, home improvement products, lawn and garden products, and décor items, as well as facilities maintenance, repair, and operations products.

In terms of the trailing-12-month EBIT margin, HD’s 13.91% is 74% higher than the 8% industry average. Likewise, its 9.71% trailing-12-month net income margin is 111% higher than the industry average of 4.60%. Also, the stock’s 1.76x trailing-12-month asset turnover ratio is 76.8% higher than the industry average of 0.99x.

For the fiscal second quarter ended July 28, 2024, HD reported net sales of $43.18 billion, up marginally year-over-year. Its gross profit grew 1.8% year-over-year to $14.42 billion. Additionally, the company’s net earnings were reported at $4.56 billion, or $4.61 per share.

Analysts expect HD’s revenue for the quarter ending October 31, 2024, to increase 3.6% year-over-year to $39.08 billion. Its EPS for the quarter ending January 31, 2025, is expected to rise 7% year-over-year to $3.02. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 41.8% to close the last trading session at $415.28.

HD’s POWR Ratings reflect solid prospects. It is ranked #32 out of 57 stocks in the B-rated Home Improvement & Goods industry. It has a B grade for Stability and Quality. To see HD’s Growth, Value, Momentum, and Sentiment ratings, click here.

Target Corporation (TGT)

TGT operates as a general merchandise retailer in the United States. It offers apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as jewellery, accessories, and shoes; beauty and personal care, baby gear, cleaning, paper products, and pet supplies.

In terms of the trailing-12-month Return on Common Equity, TGT’s 33.97% is 226.2% higher than the 10.41% industry average. Its 12.18% trailing-12-month Return on Total Capital is 78.1% higher than the 6.84% industry average. Similarly, its 1.97x trailing-12-month asset turnover ratio is 136.4% higher than the industry average of 0.83x.

During the second quarter, which ended on August 3, 2024, TGT's total revenue rose 2.7% year-over-year to $25.45 billion, and its operating income was $1.63 billion, up 36.6% over the prior-year quarter. The company’s net earnings and adjusted EPS stood at $1.19 billion and $2.57, respectively, representing increases of 42.7% and 42.4% year-over-year.

For the quarter ending October 31, 2024, TGT's EPS and revenue are expected to grow 9.4% and 2.2% year-over-year to $2.30 and $25.96 billion, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 46.2% to close the last trading session at $153.54.

TGT's POWR Ratings reflect its strong fundamentals. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It has a B grade for Value, Momentum, and Quality. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #8 out of 37 stocks. To access additional grades for TGT's Growth, Stability, and Sentiment, click here.

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AMZN shares were trading at $185.72 per share on Wednesday afternoon, up $3.00 (+1.64%). Year-to-date, AMZN has gained 22.23%, versus a 22.60% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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