Global Investing

CHAPTER 10Consumer Discretionary

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The global consumer discretionary sector is comprised of businesses that provide goods and services to consumers that are “discretionary” in nature, meaning that the purchases of these goods and services are nonessential and may be delayed by consumers. As a result, the consumer discretionary sector consists of businesses that are more affected by the economic cycle. When economic times are good, consumer discretionary businesses will earn significantly greater profits, but when economic conditions weaken, this effect works against them, and they will generate below-average profits. The importance of scale and brand power vary by industry within the consumer discretionary sector, depending on a number of factors, including the capital intensity of the business and the importance and perception of product quality and exclusivity.

Data source: Bloomberg, as of March 18, 2022.

When compared to the market, the companies mentioned in this chapter have traded at above-average valuations over the past few years despite delivering below-average profitability and lower growth in sales, profits, and dividends. Below-average profitability and lower sales and profit growth are partially a result of the substantial effect the 2020 global pandemic had on the travel-related industries within the consumer discretionary sector.

Higher sensitivity ...