Consumer Discretionary Sector: Sterling Picks for 2022January 14, 2022
As 2022 goes into full swing, it stands to reason that as the pandemic doesn’t impose quite the burden that it once did, consumer discretionary spending will tick upward. After all, nonessential products and services will come into vogue again, right? (Aren’t we beyond the need for just toilet paper?)
The consumer discretionary sector benefits when people feel more free to spend money or feel they have more money to spend. So, what are the types of products and companies that show promise in 2022 and how should you invest?
Let’s find out.
What is the Consumer Discretionary Sector?
First of all, what is the consumer discretionary sector? The consumer discretionary sector is made up of businesses that sell products and services deemed “nonessential” — those that consumers don’t have to buy. They’re different from consumer staples — that sector comprises products like food, beverages and yes, toilet paper — things that consumers tend to buy no matter how well or how poorly the economy is doing.
Here’s an example: You don’t really need diamond earrings or brand new vehicles — you can probably get along with your old gold studs or your used vehicle if you absolutely needed to.
What Makes up the Consumer Discretionary Sector?
Within the consumer discretionary sector are various groupings of companies for which demand can zip down quickly when consumers don’t need them. Here’s a quick list of industries that comprise the sector: Autos, the distributor industry, diversified consumer services, hotels and restaurants, household durables, internet and catalog retail, leisure products, media, retail and luxury goods (including apparel). Let’s take a look at a slice of options within the sector, plus a stock or two to consider for your own portfolio.
The auto industry, a very cyclical industry, includes the design, manufacture, repair and maintenance of automobiles. What does that mean? You got it — profit margins with high volatility, not to mention the cost variation even due to raw materials like copper and steel.
Ambarella Inc. (NASDAQ: AMBA)
Ambarella Inc., headquartered in Santa Clara, California, develops and sells video compression, image processing and computer vision solutions. The company creates and sells computers and software that goes toward security cameras, automotive cameras, industrial and robotic applications, and consumer applications. You’ll find Ambarella applications in Tesla’s (NASDAQ: TSLA) self-driving system. Ambarella showed third-quarter gains of fiscal 2021 of $92.2 million, up 64% from $56.1 million in the same period in fiscal 2020.
Hotels and Restaurants
When it comes to hotels and restaurants, you can bet this is one of the first things to go when the economy stagnates. Though…