With fears of a U.S. recession now left behind, investors are pouring into U.S. stocks. The Standard & Poor’s 500 index has made up for all of its February losses and now sits up about 3 percent for the year. For the year-to-date, the U.S. consumer staples sector has been a strong performer, with a 6 percent year-to-date increase.
Consumer staples are normally a defensive sector, which helped in the uncertain early part of 2016. However, these stocks have continued to rally as the market strengthened, up 4.6 percent in the past month.
The screen. We used Recognia Strategy Builder to search for large-cap U.S. consumer staples stocks that have strong year-to-date price performance, pay dividends and have low debt.
[Read: Why It’s OK to Love Legacy Investments.]
We began by setting a minimum market cap threshold of $10 billion. Next, we filtered based on year-to-date price performance. We included only stocks whose prices are up by 5 percent or more this year. To steer away from companies with high levels of debt, we limited the acceptable debt-equity ratio to 1 or less. In the event that U.S. interest rates begin to rise this year, high debt levels will be a drag on a company’s earnings.
Last, to ensure we are paid to wait while our investments appreciate, we selected only companies with a dividend yield of 1.5 percent or greater.
Kraft Heinz Co. (ticker: KHC). Kraft Heinz was formed from the 2015 merger of Kraft and Heinz to form the world’s fifth-largest food and beverage company. So far, the merged company seems to be performing well. On Feb. 25, the company announced fourth-quarter results that beat analyst expectations for earnings and also showed improved margins. The stock jumped sharply on the news and is now trading up 8.7 percent over the past 13 weeks. KHC stock is also attractive for its low debt-equity ratio of 0.44.
[See: 10 Best ETFs for Large-Cap Stock Growth.]
Procter & Gamble Co. (PG). Procter & Gamble is a Dow Jones industrial average component with a market cap exceeding $225 billion. The stock has great fundamentals with low debt and an attractive 3.2 percent dividend yield. After hitting a 52-week low in September, PG stock has rallied strongly, up 22 percent since the September lows. Although its ascent has now slowed, the stock is still up 5.2 percent in the past 13 weeks.
Reynolds American (RAI). Headquartered in Winston-Salem, North Carolina, Reynolds American is the second-largest tobacco company in the U.S. and is best known for its Camel and Newport brands of cigarettes. RAI stock has been a strong performer for the past nine months as U.S. investors seek out strong dividend stocks as an alternative to bonds. Reynolds American currently has a 3.3 percent dividend yield and a good track record of raising its dividend payment over time.
J.M. Smucker Co. (SJM). J.M. Smucker is a well-known U.S. consumer brand specializing in fruit spreads, peanut butter (Jif) and shortening (Crisco). J.M. Smucker is relatively small in comparison to other companies on our list with a market cap of $15.9 billion. The stock has enjoyed great performance over the past quarter — up 7.4 percent compared to just over 3 percent for the S&P 500. On Feb. 23, the company announced third-quarter results which beat analyst expectations on earnings but missed narrowly on revenue. The market shook off this small disappointment and went on to add 7.5 percent to SJM stock price.
[See: 7 Agricultural Stocks and ETFs to Buy and Hold.]
McCormick and Co. (MKC). Sparks, Maryland-based McCormick and Co. produces spices and herbs for retail and commercial markets. McCormick stock has been a strong performer since mid-January and has now beaten analyst expectations for the past two quarters. The stock hit a 52-week high this week driven at least in part based on investors’ positive take on its acquisition offer for British food manufacturer Premier Foods PLC.
Historical performance. Recognia Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked over a five-year period. Using a three month buy-and-hold strategy, the screen described had an 18.7 percent annualized return compared to 5.1 percent for the Dow Jones industrial average and 9.3 percent for the S&P 500 index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
More from U.S. News
The 10 Best European Stock ETFs on the Market
7 Great Ways to Invest in Cuba
7 Stocks That Will Ruin Your Portfolio
5 Fabulous Consumer Staples Stocks originally appeared on usnews.com
