Top 3 Consumer Discretionary Stocks Poised to Bounce Back in 2023

Discretionary spending experiences an uptick when the economy is recovering and the cost of borrowing is relatively low.

| More on:
Happy shoppers look at a cellphone.

Source: Getty Images

Most Canadian households engage in two different types of spending: necessary and discretionary. Necessary spending includes things like debt repayment, utility bills, insurance, etc.

This spending continues regardless of the economic conditions and even the financial condition of the individual or household. In contrast, discretionary spending experiences an uptick when the economy is recovering, and the cost of borrowing is relatively low.

These characteristics are reflected in the stocks representing companies that rely upon necessary or discretionary spending for their revenues, though not consistently. Right now, many discretionary stocks are thriving, while others are either bouncing back or waiting for the right opportunity.

A manufacturing company

Guelph-based Linamar (TSX:LNR) started out as a humble machine shop and has now grown into an international organization with a presence in multiple countries. It develops products in three main categories: mobility (various vehicle parts), industrial (most agricultural machinery), and electrification products, which ties into mobility if you consider the ongoing advent of electric vehicles (EVs).

The stock was already in a bear market phase when COVID hit, and the 2020 crash became a continuation of an existing downward pattern. The company benefited from the subsequent bullish phase with the rest of the market, followed by another correction.

However, it has been building positive momentum for a while now and has gone up 18% since the beginning of the year. Its undervaluation may be a sign of further growth to come.

A clothing company

Montreal-based Gildan Activewear (TSX:GIL) has established a strong presence in the North American textile industry. It also has an impressive international presence, with manufacturing facilities in multiple countries, allowing it proximity to its target markets.

Five different clothing brands fall under the Gildan umbrella, including Gildan itself, which is a well-known name in both retail and wholesale markets.

Since clothing is a necessity, and Gildan makes practical, everyday clothing items instead of luxury wear, it has some inherent resilience against markets where discretionary spending is down.

Still, the company went through a major and a minor correction phase in the last five years, and it’s still reeling from the second one, though its valuation and recent performance are good signs that the stock will fully bounce back within the year.

A vehicle dealership company

Edmonton-based AutoCanada (TSX:ACQ) has a network of about 65 locations, where it sells both new and used vehicles. The locations are in both Canada and U.S., and the company has partnerships with some of the best-selling brands in both countries. It’s also well-positioned to thrive in an EV boom and will benefit from an uptick in the sales of EV vehicles, especially in Canada.

The most attractive feature of this stock is its valuation. The company is trading at a price/earnings ratio of just 6.5. The stock is already on its way up and has grown about 13% in the last 30 days alone. So, it’s already bouncing back, and capturing and riding this positive momentum now can be a positive development for most Canadian investors.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if AutoCanada made the list!

Foolish takeaway

It’s too soon to say whether the stocks are entering a long-term bullish phase (when they bounce back) or if it would just be an oscillation in the cycle. Still, all three companies have a healthy presence in their respective industries and niche, which strengthens their positions as long-term holdings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Gildan Activewear and Linamar. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Canadian Dollars
Dividend Stocks

Buy 734 Shares of This Top Dividend Stock for $9,574 a Year in Passive Income

Are you looking to earn regular income? Now is an opportune time to buy Dividend Aristocrats at discounts and accelerate…

Read more »

A plant grows from coins.
Dividend Stocks

This Ultra-High Yield Stock Just Hit a 52-Week Low, and it’s Still a Buy Today

Enbridge Inc (TSX:ENB) stock recently hit a 52-week low. Here's why.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 6% Dividend Stock Pays Cash Every Month

Are you looking to earn cash every month from October 15 onwards? This 6% dividend stock gives you monthly payouts.

Read more »

Person slides down a stair handrail
Dividend Stocks

With a 7.6% Dividend, This TSX Stock Is One to Buy Now and Hold for Decades

Now is an opportune time to invest in this no-brainer TSX stock and get +$30 extra dividend for decades on…

Read more »

Portrait of woman having fun in the street.
Dividend Stocks

CPP Benefits Will Be Higher for Millennials and Gen Z

Older Canadians won't get enhanced CPP, but they may invest in dividend stocks like Royal Bank of Canada (TSX:RY).

Read more »

A plant grows from coins.
Dividend Stocks

The Best Dividend Stocks in Canada Right Now

Seeking to give a boost to your income portfolio, consider investing in these best Canadian dividend stocks.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Retirees: Want Fast-Growing Passive Income? Here Are 3 Long-Term Dividend Stocks

Are you looking for dividend stocks that can grow their distributions very quickly? Here are three long-term picks!

Read more »

dividends grow over time
Dividend Stocks

2 Top Dividend Stocks You Can Buy and Hold Forever

The market is full of great dividend stocks, but not all are long-term gems. Here are two options that you…

Read more »