The consumer discretionary or the consumer cyclical sector makes up roughly around 3.6% of the S&P/TSX Composite Index. This sector includes shares of companies that sell goods and services that are considered non-essential, including automobiles, clothing, and leisure. This is one of the key reasons why the performance of this sector is largely linked to the state of the economy and consumer confidence, as consumers tend to spend more on these items when they have higher incomes and strong optimism.
While high interest rates and inflationary pressures have affected consumer spending of late, the central banks in the United States and Canada are expected to slash interest rates multiple times in the near term, which could revitalize consumer confidence and spending. This factor could also boost the performance of many TSX consumer discretionary stocks. Given that, it could be the right time to look for some attractive consumer discretionary stocks to buy in May 2024.
In this article, I’ll highlight three such Canadian stocks that have strong fundamentals and growth prospects.
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Magna stock
Magna International (TSX: MG) is the first consumer discretionary stock on the Toronto Stock Exchange that I believe could witness a strong recovery as economic conditions improve. This Aurora-headquartered automotive supplier and mobility company currently has a market cap of $17.7 billion as its stock trades at $61.97 per share after sliding by 20% so far in 2024. At this market price, MG stock also offers a decent 4.2% annualized dividend yield.
In the last 12 months ended in March, Magna’s total revenue rose 10.9% YoY (year over year) to US$43.1 billion. More importantly, the company’s adjusted earnings during this period surged by 37% YoY to US$5.37 per share due mainly to its continued focus on cost initiatives, productivity, and efficiency improvements.
Despite its positive financial growth trends, Magna stock has slid by nearly 49% over the last three years as the ongoing macroeconomic challenges and a weak consumer spending environment have weighed heavily on the automotive industry. However, as early signs of easing inflationary pressures point towards potential rate cuts, the automotive sector may be one of the first to benefit, in my opinion, making Magna’s current valuation appear attractive for long-term investors.
Canada Goose stock
Canada Goose (TSX: GOOS) is another attractive TSX consumer discretionary stock you may want to buy now and hold for the next decade. This Toronto-headquartered performance luxury apparel firm currently has a market cap of $1.8 billion as its stock trades at $19.12 per share with nearly 23% year-to-date gains.
In its fiscal year 2024 (ended in March), Canada Goose’s sales climbed by 9.6% YoY to $1.3 billion with the help of higher retail sales and strategic collaborations. Its adjusted earnings during the fiscal year, however, fell 5.7% YoY to $0.99 per share due partly to higher expenses related to retail network expansion and a decline in operating income.
Despite these challenges, Canada Goose’s long-term growth outlook appears strong as the company continues to focus on expanding its global store network and strengthening its product range beyond traditional categories. These positive factors could help GOOS stock continue soaring and yield strong returns in the long run.
