Top Mid-Cap Consumer Discretionary Stocks


Consumer discretionary spending is a term that is used to describe the money that is spent by consumers on products and services that are considered to be non-essential. Discretionary income in turn can be thought of as the money that is left after a consumer’s primary needs like food, shelter, and clothing are met. With extra money available, consumers have a choice on how to allocate it. Prudent options include saving or investing for the future, but the more popular option is to spend.

Here’s where companies within the consumer discretionary sector enter the picture because they are the ones that produce the items for consumers to spend their extra money on such as entertainment, luxury apparel, leisure activities, and automobiles. After a couple years of various forms of pandemic restrictions and lockdowns, along with concerns of rising inflation and supply chain bottlenecks, people are looking to spend some of their savings, which will likely benefit the companies within the consumer discretionary sector and their shareholders.

In this article, we’ll look at medium-sized businesses, also known as mid-caps, within the consumer discretionary sector and discuss why this could be uniquely positioned to move higher over the weeks and months to come.

Key Takeaways

  • Consumer spending on products within the consumer discretionary sector is often used as a sign of overall economic health.
  • Discount retailers make for lucrative investments during times when consumers are closely watching their discretionary spending.
  • Trends around the type of goods that consumers spend their discretionary income on drastically affect share prices across the consumer discretionary sector. New and used cars, bargain-priced goods, and home furnishings are several categories that could be of interest over the months ahead.

How to Choose Mid-Cap Consumer Discretionary Companies

As a method for identifying top mid-cap discretionary companies, we analyzed the top 50 holdings of the top five mid-cap focused exchange-traded funds (ETFs). The holdings were filtered by sector and then further analyzed based on the amount of capital invested in each holding, as well as the popularity in terms of the number of occurrences of a particular holding had between the funds. Presented below is the list of the top 10 mid-cap consumer discretionary companies that were a result of the screen.

· Aptiv PLC (APTV)
· Service Corporation International (SCI)
· Williams-Sonoma Inc. (WSM)
· GameStop Corp. Class A (GME)
· Five Below Inc. (FIVE)
· Lithia Motors Inc. (LAD)
· D.R. Horton Inc. (DHI)
· Lennar Corp. (LEN)
· O’Reilly Automotive, Inc. (ORLY)
· Chipotle Mexican Grill Inc. (CMG)

Lithia Motors, Inc. (LAD)

The purchase of a new or used vehicle is commonly one of largest financial transactions of a person’s life. Spending days or months looking to find the perfect vehicle—whether based on model, color, or price—is the norm. As prices of new and used vehicles continue to be at historically high levels, one group that is uniquely positioned to benefit are the automotive dealerships. With a market capitalization of approximately $8.6 billion, Lithia Motors, Inc. (LAD) is one such company. With a broad coast-to-coast automotive dealership network of 267 locations selling over 60,000 vehicles as of April 18, 2022, Lithia Motors is in one of the largest operators within the U.S.

Looking at the weekly chart below, you’ll notice that the price of Lithia Motors shares has significantly outperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) since the start of the COVID-19 pandemic. Strategic investors may want to consider keeping an eye on the automotive dealerships over the coming months as supply constraints will likely continue to be a major driver of prices and resultant corporate margins over the months ahead.

Williams-Sonoma, Inc. (WSM)

Williams-Sonoma, Inc. (WSM) is a well-known specialty retailer of high-quality products for the home. As of April 18, 2022, the company has a market capitalization of approximately $10.6 billion and is held within the iShares Core S&P Mid-Cap ETF (IJH). Williams-Sonoma is positioned to benefit from increased consumer discretionary spending because many people are still spending more time at home than they did prior to the pandemic and as a result are noticing things about their living spaces that they’d like to change.

Looking at the weekly chart below, you can see that Williams-Sonoma has strongly outperformed the rest of the consumer discretionary sector, as measured by the XLY ETF, since the start of the pandemic. The macro trend of increased spending on home renovations and associated furnishings is one that is likely to continue, and Williams-Sonoma is uniquely positioned within the mid-cap space to benefit.


Investors often look to the consumer discretionary sector as a beacon for the overall strength of the economy. A weakening of share prices across the broad consumer discretionary sector can be used as a leading indicator of an economic contraction.

Five Below, Inc. (FIVE)

The growth of discount retailers such as DollarTree, Inc. (DLTR) over the past decade has been nothing short of astonishing. The share price has risen by more than 1,500% since 2005 and growth to its current market cap of approximately $39 billion as of April 18, 2022. Within the discount retail industry, the larger firms such as Dollar Tree and Dollar General Corporation (DG) get most of the attention. However, one mid-cap company within the space, which is also a holding of the iShares Core S&P Mid-Cap ETF, is not as well-known, but it could be worth a closer look. With a market capitalization of approximately $10 billion as of April 18,2022, Five Below, Inc. (FIVE) offers products at a slightly higher price point relative to its direct competitors. Most products within its more than 1,200 stores sell at prices between $1 and $5, which gives the company some extra room for healthy profit margins relative to its competitors. Some products sell for more than $5, but these are often an exception in relation to the broader product mix.

Looking at the weekly chart below, you’ll notice that the company’s stock price outperformed the XLY ETF for much of 2021, but it has been strongly correlated in 2022. From a trader’s perspective, the slight uptick in recent weeks could suggest that the price will return to the type of relative outperformance that it was experiencing previously.

The Bottom Line

The consumer discretionary sector benefits when consumers have extra money in their wallets and are looking to spend. Whether it’s buying a new or used car, furnishing the interior of one’s living space, or buying interesting products at affordable prices, the consumer discretionary sector of the mid-cap market segment offers investors plenty of interesting opportunities.

What does consumer discretionary spending mean?

Consumer discretionary spending refers to the goods and surfaces that are purchased with money that is leftover after paying for necessities such as food and shelter. The companies that produce the goods that consumers spend their discretionary income on are collectively known as the consumer discretionary sector.

What is a mid-cap consumer discretionary company?

A mid-cap consumer discretionary company refers to a medium-sized business, typically with a market capitalization between $2 billion and $10 billion, that sells products to consumers that are purchased with discretionary income. The products within this sector are often regarded as non-essential, and success of these businesses greatly depends on the state of the economy.

Is there such thing as a consumer discretionary ETF?

Many investors look to gain exposure to specific sectors of the market such as consumer discretionary. There are several ETFs that are available that are designed specifically to track the consumer discretionary sector such as the Select Sector SPDR Fund (XLY).


Leave a Reply

Your email address will not be published. Required fields are marked *