A clear sign that consumer confidence is returning is the post-election rally in consumer discretionary stocks. The Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY), one of the leading consumer discretionary exchange-traded funds (ETFs), is up 24.7% in the last three months. That’s pushed the fund to a gain of over 31% in 2024, outpacing the S&P 500.
This is one time when investors may be better off investing in the sector ETF as opposed to investing in individual stocks. That’s because while many of the top names in the sector are participating in the current rally, they still have some catching up to do.
The good news is that 2025 is shaping up to be a good year for stocks in general. If consumer confidence results in growing incomes, discretionary dollars may start to shake loose. In that scenario, investors have several stocks that were beaten down in 2024 but look poised for a comeback in lockstep with the consumer. Here are three names to consider.
1. The Fundamentals Are Aligning for This Athleisure Giant
Despite being up over 57% in the three months ending December 11, 2024, Lululemon Athletica (NASDAQ:LULU) stock is still down over 21% for the year. However, trading at around $400 per share as of this writing, it appears that the market has done its work in setting more reasonable expectations for LULU stock.
The reason for the drop in the stock price is attributed to some inventory discrepancies in the United States and a slowdown in China. Both of those are true, but even though U.S. comparable sales have fallen 2% year-over-year (YoY) in the last two quarters, the company has still delivered higher YoY revenue and earnings in each of the last four quarters.
But what may have been good enough a couple of years ago wasn’t good enough in 2024. And once the sell-off started, investors didn’t need a reason to look for other opportunities. That said, with the company projecting about $16 in full-year earnings and with a forward price-to-earnings ratio of around 28x, the stock looks undervalued with a price target of around $451, which looks reasonable.
2. There’s Still Room to Slide Into CROX Stock
Crocs (NASDAQ:CROX) stock is up about 19% in 2024, but unlike other consumer discretionary stocks, the iconic footwear company’s shares are down about 13% in the last three months. And that’s a continuation of a trend that started earlier in the year.
Like Lululemon, the issue weighing on the stock isn’t about declining revenue and earnings. The company continues to beat on the top and bottom lines on a YoY basis. However, at the midpoint of the company’s fourth-quarter guidance, the company will generate $12.87 in earnings per share (EPS) for the full year. Combined with a forward P/E of 8.62, you get a price of around $110, which is right about where the stock is trading.
However, analysts have been bidding CROX stock higher since its quarterly earnings report in October. That’s likely due to the company’s dual priorities of paying down debt and buying back shares. Regarding the latter, the company has already repurchased $1.1 million in shares in 2024 and has $549 million left on its existing repurchase authorization.
3. YETI Stock May Be a Great Gift to Give Yourself
Yeti Holdings (NYSE:YETI) is a premium lifestyle brand known for its iconic coolers and drinkware. The stock has only been trading publicly since 2019, but that’s notable because the company offered the right products for the right time, as many consumers discovered (or tolerated) a love for the outdoors in 2020 and 2021.
However, driven by investor optimism and market sentiment—often referred to as "animal spirits"—YETI's stock price surged beyond its fundamentals. While revenue and earnings remain up year-over-year, such rapid growth was unsustainable after the boom of 2020 and 2021.
Nevertheless, the stock remains down 13% in 2024 despite a run-up of 19.7% in the last three months. At $44.80 per share as of the market close on December 11, YETI stock is right around the consensus average. However, the forecast for earnings and the company’s forward P/E suggest a gain of about 10%. However, that takes into account the company’s plans for a 9% increase in revenue for the full year 2024. That may be too low. And that gain may move higher if the company makes good on its plans to buy back about $200 million worth of its shares.