XLY - Stocks to watch out for in the Consumer Discretionary sector

2023-07-20 14:30:40 ET

The S&P 500’s Consumer Discretionary sector (NYSEARCA: NYSEARCA: XLY ) have performed relatively well this year, gaining about 33% in the first half of 2023.

The heavy-weight sector, which consists of companies ranging from electric carmaker Tesla ( TSLA ) and Starbucks ( SBUX ) to e-commerce giant Amazon ( AMZN ), faced pressure last year as higher inflation and interest rate reflected on consumer discretionary spending. The sector plummeted to 38.6% last year in the face of an uncertain economy.

However, the latest signs of the Federal Reserve ending its monetary policy tightening coupled with slowing inflation and a rebound in spending have cheered investors.

According to Seeking Alpha's Quant Rating system, the Consumer Discretionary sector has an average health score of 3.45. The system awards grades based on quantitative measures, like valuation, earnings growth and recent stock performance. The highest possible score for any individual company is a 5.

Looking in to individual companies in the sector, 17 out of 58 stocks are rated as Buy or higher based on their Quant Ratings, while 38 are considered Neutral and one stock is rated as Strong Sell.

Royal Caribbean Cruises ( RCL ) is leading with the highest score in the group, rating a 4.97 out of 5. A high grade for the momentum and revisions metrics boosted its ratings.

Tesla, which reported a big drop in second quarter margin on Wednesday after markets close, has a score of 3.46, pulled down mostly by its valuation grade of F. The Austin-based automaker delivered 466,000 electric vehicles in the second quarter and said it is focusing on cost reduction.

Amazon.com ( AMZN ), another stock in the sector whose market valuation stands at $1.39 trillion, holds a rating of 3.48, boosted by the metrics of profitability and growth. However, a grade of D- in the valuation metrics has dragged the stock down.

Advance Auto Parts ( AAP ) has the lowest Quant rating of 1.29 in the sector. The stock declined nearly 52% so far this year.

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