Consumer discretionary stocks are representative of companies in a wide range of industries and sectors that sell non-essential goods and services. In other words, we’re not talking toilet paper, we’re talking iPhones. These are the sorts of purchases you don’t really need to make, but many generally really want to splurge on. 

In boom times, consumer discretionary stocks tend to soar, as our consumer-driven economy goes into hyperdrive. That was certainly the case for both stocks on this compare-and-contrast list, with surging stock prices seen following the pandemic and a stimulus-laden recovery plan put forward by the government and Federal Reserve officials.

Interestingly, higher interest rates have brought down inflation considerably, but haven’t necessarily changed consumers’ spending habits. Thus, it may be surprising to see the following two world-class brands on this list take such a hit, though there are other key reasons for these stocks to be down.

Key Points About This Article:

• Nike and Starbucks are two of the most prominent consumer discretionary stocks driven by world-class brands.
• These stocks are both down considerably of late, with many investors trying to digest which may be the better pick right now.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Nike (NKE)

Nike (NYSE:NKE) is the clear global leader in athletic gear, and particularly running shoes (or tennis shoes, or sneakers, wherever you’re from). The company’s Air Jordan sneaker line is one of many that consumers continue to not only buy for consumption purposes, but invest in. I know of a few individuals who buy and sell shoes as a hobby, and one that actually makes good money doing so.

The ecosystem Nike has created around its brand has its roots in sports marketing, with the company signing many of the most prominent athletes to very long deals to promote its products. The likes of Michael Jordan and Tiger Woods were long-standing Nike signings, though those contracts have since lapsed.

Nike’s world-class brand (and world-class margins) has attracted significant capital to this stock, with the company’s stock price an absolute parabola higher. However, since hitting its peak of around $180 per share in 2021, shares of NKE stock now trade below $80 per share and have been on a rather consistent bearish trend lower.

Much of this has to do with the company’s high valuation and high beta, with many viewing the company as a potential laggard if Chinese sales continue to weaken and we do eventually see the global recession some are calling for. As a result of recent poor performance, Nike announced Elliott Hill would replace John Donahoe as CEO on Oct. 14. We’ll have to see if Donahoe can execute a turnaround at this company, but Nike certainly looks more like a turnaround play than a growth darling right now, that’s for sure. 

Starbucks (SBUX)

Starbucks‘ (NASDAQ:SBUX) sales declined in the past two quarters, leading many investors to sour on the company’s growth prospects over the long-term. However, Starbucks’ rather consistent decline to start the year stopped abruptly when the company announced that former Chipotle CEO Brian Niccol would be stepping in to head up the coffee giant. Since this announcement, shares of SBUX stock have not only held their gains but continued higher, turning a year-to-date loss of around 25% just three months ago to positive returns of roughly 2% at the time of writing.

That’s an incredible turnaround for the company, where Niccol is looking to make some key operational improvements. Niccol is trying to position Starbucks as a reinvigorated brand, and look to improve the quality and service elements of the business to create more long-lasting relationships with customers and more steady foot traffic growth. With overall transactions down 6% over the past quarter, and shares of SBUX stock now down 24% from their July 2021 high, this is a stock that remains well off from its previous highs, with plenty of work to be done.

At a multiple of around 27-times earnings, SBUX stock isn’t cheap either, so this is a company that will need to live up to growth expectations to avoid falling from current levels. We’ll have to see how incoming quarterly data roll in, but for now, I think the market’s perception of the company from a management perspective is a lot better than that of Nike.

The Verdict

In my view, both Nike and Starbucks have world-class brands that are worth investing in for the long-haul. Whether that’s the right decision at today’s price or not is really the topic that’s up for discussion.

I do think Starbucks’ big move to bring in Brian Niccol could certainly pay off, but the question is whether one man (and his management team) can turn this freight liner around. Starbucks is a massive organization with more international locations than domestic, so geopolitical concerns could factor into the stock once again. That’s a factor to consider.

That said, I do think the company’s fundamentals are superior to Nike’s, even after the rather dramatic drop in NKE stock. These are two companies I’m rooting for in terms of their turnaround efforts. I just think that Nike has more work to do on this front, and that’s why I’d prefer Starbucks stock right now.

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