The consumer discretionary index (ASX: XDJ) is comprised of companies that provide services that are considered non-staple consumer goods and services. These types of companies are more susceptible to economic cycles. Some examples are apparel, leisure equipment, hotels, entertainment, consumer retailers and restaurants.
The consumer discretionary index outperformed the S&P/ASX 200 (INDEXASX: XJO) in 2019, finishing the year 28% higher, compared to the index’s return of 18%.
Despite the recent macroeconomic turmoil reflected by poor employment growth, lack of retail expenditure and an uncertain interest rate environment, the consumer discretionary index was the best performing sector index of 2019.
Following on with this trend into 2020, here are 3 ASX shares that I want to buy this January.
Star Entertainment Group Ltd (ASX: SGR)
The Star Entertainment Group is Australia’s leading integrated gaming resort company. It owns and operates 3 casinos located in Sydney, Brisbane and the Gold Coast. The Star had a great year in 2019, reporting that its net profit after tax (NPAT) and earnings before interest, tax, depreciation and amortisation (EBITDA) both increased by 38% and 14%, respectively.
The Star is currently expanding its Gold Coast location with 2 residential towers and is moving from the heritage-listed Treasury building in Brisbane to a new location, which is set to open in 2020.
The casino industry within Australia is tightly regulated, making it hard for new entrants to establish themselves within the market. For this reason, I think Star Entertainment shares are a buy.
Harvey Norman Holdings Limited (ASX: HVN)
One of the few lasting nationwide retailers, Harvey Norman is a force to be reckoned with. It boasts 194 stores across Australia that sell furniture, computers, bedding and consumer electrical products, just to name some of its catalogue.
Harvey Norman also invests in property and runs a small consumer finance and commercial loan operation that integrates well with their retail operations – think “24 months interest free”.
The reason Harvey Norman shares are a buy from me is due to its global expansion strategy, which is already well underway and will continue to be rolled out into 2020. Harvey Norman is opening 21 new stores internationally over the next 2 years, 17 of them in the Malaysian market which has a greater population than Australia and is set to enter the global middle class (based on GDP per capita) in 2024.
Aristocrat Leisure Limited (ASX: ALL)
Aristocrat is in the business of developing and deploying gaming platforms, content and systems to licensed venues. Basically, they build slot machines, electronic roulette tables and any electronic system that’s of use to casinos.
This business is a gold mine in a country that has previously been slated as the world’s biggest gambling losers. According to a report published in the NY Times, in Australia an average of $1,200 per person is lost to gambling, 20% of which is lost to electronic gaming machines like those that Aristocrat manufacture.
This notion is reflected in Aristocrat’s annual report, in which the company reported an increase in revenue from ordinary activities of 25% in 2019!
The pokies at your local RSL probably aren’t going anywhere fast, and neither is the company that manufactures them. Therefore, I think the Aristocrat share price is a buy.
In times of economic downturn, the consumer discretionary index is much more likely to underperform the market compared to other sectors.
However, in environments where the wider market is doing well the discretionary index tends to build momentum and overperform like it did in 2019.
If you are looking to establish some long-term growth prospects within the discretionary index, I think Star Entertainment Group, Harvey Norman Holdings and Aristocrat Leisure are 3 great places to start.
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Motley Fool contributor Jack Kaminski has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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