12 Highest-Rated Consumer Stocks Picked by S&P (Update1)

(Story updated to add that Tiffany recently raised its fiscal 2012 earnings outlook.)

BOSTON ( TheStreet) -- Consumer-discretionary stocks, led by auto makers, restaurants and retailers, and their suppliers, have been among the top performers coming out of the recession, and it looks like this year will be no exception.

Those shares were up 15.7% through the end of the first quarter, versus the S&P 500's 12% gain, outdone only by information-technology stocks, which gained 20.8%, and financials, up 19.8%.

"This comes after three consecutive years of relative strength for the consumer-discretionary sector through the end of 2011, during which it outperformed the broader market index by an average of more than 1,100 basis points per year," said Tuna Amobi, an S&P Capital IQ equity analyst, in a research note.

It appears that the consumer is willing and able to spend, so this train could gather speed as employment and consumer confidence pick up on continued positive economic news. "Looking ahead, increasingly favorable macroeconomic and fundamental underpinnings could help several of the sector's highly cyclical constituents to sustain their relative strength in the year ahead," said the S&P note. "Overall, we expect gradual but steady improvement in consumer confidence, spending, jobs growth and other macroeconomic variables to help support our continued favorable outlook for the consumer discretionary sector."

Job growth is one of the key fundamentals. February's job numbers were released Friday with a disappointing 120,000 jobs added, although the unemployment rate ticked down to 8.3% from 8.4%.

"Even against a relatively high unemployment rate, recent monthly gains in the job market should bode well for incomes and purchasing power," said S&P, as consumer spending and disposable income recently notched sequential monthly improvements.

In highlighting the consumer-discretionary sector's performance, S&P listed its 12 top picks. Four of the 12 are major players in the auto industry, three are in media and entertainment, and two are retailers of luxury goods, the latter a sub-sector that has done well throughout the recession and into the recovery.

Here are summaries of 12 consumer discretionary stocks rated "strong buy" by Standard & Poor's, ranked in inverse order of returns this year:

12. McDonald's ( MCD)

Company profile: McDonald's, with a market value of $100 billion, is the largest fast-food restaurant company in the world, with about 33,500 restaurants in 119 countries.

Dividend Yield: 2.85%

Investor takeaway: Its shares are down 1% this year and have a three-year, average annual return of 23%. Analysts give its shares nine "buy" ratings, 10 "buy/holds," and 10 "holds," according to a survey of analysts by S&P. S&P has a $109 price target on its shares, which is an 11% premium to the current price.

11. Johnson Controls ( JCI)

Company profile: Johnson Controls with a market value of $22 billion, operates three businesses: temperature controls for buildings (HVAC systems); auto electronics and seats; and power solutions, a maker of vehicle batteries.

Dividend Yield: 2.27%

Investor takeaway: Its shares are up 2% this year and have a three-year, average annual return of 29%. Analysts give its shares 11 "buy" ratings, 10 "buy/holds," and eight "holds," according to a survey of analysts by S&P. On April 2, the company announced a restructuring and layoffs "due to business reasons and continued financial challenges." S&P has a $41 price target on its shares, which is a 28% premium to the current price.

10. Tiffany ( TIF)

Company profile: Tiffany, with a $9 billion market value, is an international jeweler and specialty retailer, with a wide range of branded products.

Dividend Yield: 1.7%

Investor takeaway: Its shares are up 2.4% this year and have a three-year, average annual return of 44%. Analysts give its shares nine "buy" ratings, two "buy/holds," 12 "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. S&P has an $87 price target on its shares, which is a 29% premium to the current price. Tiffany recently upped its forecast for its fiscal 2012 after reporting fiscal 2011 fourth quarter results, to earnings of $3.95 to $4.05 per share and a sales gain of 10%. That is better than analysts' current estimate of $3.93 per share on a 7% sales increase, according to a survey conducted by Thomson Reuters.

9. Viacom ( VIA.B)

Company profile: with a market value of $26 billion, is a global media company with several leading cable network properties, as well as Paramount Pictures movie studio.

Dividend Yield: 2.12%

Investor takeaway: Its shares are up 4.6% this year and have a three-year, average annual return of 35%. Analysts give its shares 13 "buy" ratings, 11 "buy/holds," and 10 "holds," according to a survey of analysts by S&P. S&P has a $55 price target on its shares, which is a 17% premium to the current price.

8. Dreamworks Animation ( DWA)

Company profile: Dreamworks, with a market value of $1.5 billion, makes animated films and distributes them through theatrical releases, home video sales, television licensing, television specials, merchandising, and licensing.

Dividend Yield: N/A

Investor takeaway: Its shares are up 8% this year and have a three-year, average annual decline of 7%. Analysts give its shares two "buy" ratings, one "buy/holds," five "holds," three "weak holds," and four "sells," according to a survey of analysts by S&P. The company has no debt and nearly $1.40 per share in cash. S&P has a $25 price target on its shares, which is a 35% premium to the current price.

7. Royal Caribbean ( RCL)

Company profile: Royal Caribbean, with a market value of $6 billion, is the world's second-largest cruise company, operating 39 ships.

Dividend Yield: 1.43%

Investor takeaway: Its shares are up 13% this year and have a three-year, average annual return of 41%. Analysts give its shares 13 "buy" ratings, five "buy/holds," and 10 "holds," according to a survey of analysts by S&P. S&P has a $37 price target on its shares, which is a 32% premium to the current price.

6. Target ( TGT)

Company profile: Target, with a market value of $38 billion, operates 1,515 discount stores and 252 SuperTargets.

Dividend Yield: 2.07%

Investor takeaway: Its shares are up 19.6% this year, and have a three-year, average annual return of 18%. Analysts give its shares 11 "buy" ratings, six "buy/holds," and 10 "holds," according to a survey of analysts by S&P. S&P upgraded Target to "strong buy" rating on April 2, and raised its price target to $72, from $57 as Target reported its same-store sales in March rose 7.3%, much better than expected. S&P has a $72 price target on its shares, which is a 24% premium to the current price.

5. General Motors ( GM)

Company profile: GM, with a market value of $40 billion, holds 19% of the U.S. car market, the most of any automaker. It emerged from bankruptcy in July 2009 after a government bailout.

Dividend Yield: N/A

Investor takeaway: Its shares are up 22% this year. Analysts give its shares nine "buy" ratings, seven "buy/holds," and five "holds," according to a survey of analysts by S&P. S&P has a $34 price target on its shares, which is a 33% premium to the current price. S&P says "we believe GM has shrunk its North American production footprint and cost structure to be profitable through the next demand cycle" and that new production and incentive discipline in the U.S., will enhance its products, marketing and profits.

4. CBS ( CBS)

Company profile: CBS, with a market value of $22 billion, owns the CBS television network, 30 local TV stations, and 50% of CW, a joint venture between CBS and Time Warner ( TWX).

Dividend Yield: 1.20%

Investor takeaway: Its shares are up 23% this year and have a three-year, average annual return of 92%. Analysts give its shares 12 "buy" ratings, nine "buy/holds," seven "holds," and one "weak hold," according to a survey of analysts by S&P. S&P has a $35 price target on its shares, a 6% premium to the current price.

3. Coach ( COH)

Company profile: Coach, with a market value of $22 billion, is a manufacturer, distributor, and retailer of handbags and leather accessories.

Dividend Yield: 1.1%

Investor takeaway: Its shares are up 24% this year and have a three-year, average annual return of 61%. Analysts give its shares 14 "buy" ratings, eight "buy/holds," nine "holds," and one "weak hold," according to a survey of analysts by S&P. S&P has a $80 price target on its shares, a 6% premium to the current price.

2. TRW Automotive ( TRW)

Company profile: TRW, with a market value of $5.8 billion, is one of the biggest suppliers to the auto industry worldwide, offering safety systems including braking, steering, and electronic components, modules, and systems.

Dividend Yield: N/A

Investor takeaway: Its shares are up 40% this year and have a three-year, average annual return of 107%. Analysts give its shares six "buy" ratings, five "buy/holds," and one "hold," according to a survey of analysts by S&P. S&P has a $60 price target on its shares, which is a 28% premium to the current price.

1. Magna International ( MGA)

Company profile: Magna, with a market value of $11 billion, is one of the largest, most diversified auto parts suppliers in the world.

Dividend Yield: 2.3%

Investor takeaway: Its shares are up 41% this year and have a three-year, average annual return of 42%. Analysts give its shares four "buy" ratings, six "buy/holds," seven "holds," one "weak hold," and one "sell," according to a survey of analysts by S&P. It's expected by analysts to earn $4.62 per share this year and that earnings will grow by 15% to $5.32 in 2013. S&P has a $57 price target on its shares which is a 21% premium to the current price.

>>To see these stocks in action, visit the 12 Highest-Rated Consumer Stocks Picked by S&P portfolio on Stockpickr.
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