Morningstar recommends these consumer staples stocks.
With so much unpredictability and uncertainty in both the economy and the stock market these days, investors looking to play defense with their portfolios can always count on high-quality consumer staples stocks. Unlike cyclical stocks, consumer staples companies produce household goods, food, beverages and other products that are always in demand, even during an economic downturn. The top consumer staples stocks generate steady earnings and revenue numbers throughout the ups and downs of the economic cycle, and many pay sizable dividends. Here are eight consumer staples stocks to buy that have five-star value ratings from Morningstar.
British American Tobacco (BTI)
British American Tobacco is the largest European tobacco company, but it generates slightly less than half of its sales in the U.S. Analyst Philip Gorham says conventional tobacco will likely continue to drive the profits and the cash flow needed to support British American’s 7.6% dividend for at least the next 10 years. However, he says tobacco companies know the long-term future hinges on electronic cigarettes and other next-generation products. Gorham says British American may be the best-positioned tobacco company in emerging categories, given its Vype brand and Vuse investment. Morningstar has a “buy” rating and $54 fair value estimate for BTI stock.
Anheuser-Busch InBev (BUD)
Anheuser-Busch InBev is the world’s largest brewer and the parent company of Budweiser, Beck’s and Corona. CEO Carlos Brito reportedly plans to leave the position in 2021 after 16 years at the helm. Gorham says Brito’s exit will mark the end of an era of consolidation in the brewing industry. While Anheuser-Busch and Brito have secured “near-monopoly positions” in Latin America and other emerging markets, Gorham says their 2016 buyout of SABMiller has saddled the company with $103 billion in debt as of the end of 2019. Morningstar has a “buy” rating and $96 fair value estimate for BUD stock.
Coty is the largest global fragrance manufacturer and one of the world’s leading cosmetics producers. Analyst Rebecca Scheuneman says Coty’s fiscal fourth-quarter numbers were abysmal, but there are reasons for optimism. First, she says a $1 billion investment by KKR and the company’s $3 billion sale of Wella should shore up its balance sheet significantly. Second, Scheuneman says incoming CEO Sue Y. Nabi has 20 years of experience at L’Oreal and has already laid out a clear strategy, including expanding its luxury unit and emphasizing digital sales. Morningstar has a “buy” rating and $6.50 fair value estimate for COTY stock.
Imperial Brands (IMBBY)
Imperial Brands is a British tobacco company that owns brands such as Davidoff, West and Montecristo. Imperial cut its dividend by one-third in May, but Gorham says the decision was more about resetting the stock’s financials ahead of incoming CEO Stefan Bomhard’s arrival than it was about a liquidity crunch. Tobacco volumes were down 0.5% year over year in the first half of 2020, but revenue was up 0.9% in an extremely difficult environment for conventional tobacco. Gorham says Imperial is “materially undervalued” at current prices. Morningstar has a “buy” rating and $42 fair value estimate for IMBBY stock.
Ingredion produces sweeteners, nutrition ingredients, starches and other products derived from processing corn and other starches. Analyst Seth Goldstein says Ingredion faces near-term headwinds given the difficult economic climate, but its stock is undervalued at current levels. Volumes were down 12% and operating income was down 29% in the second quarter, but Goldstein says Ingredion is positioned for sequential improvement in the second half of the year. While Ingredion’s profits could remain pressured in the near future, Goldstein says those earnings risks are already priced into the stock. Morningstar has a “buy” rating and $120 fair value estimate for INGR stock.
Coca-Cola Femsa (KOF)
Coca-Cola Femsa is the largest international bottler for Coca-Cola Co. (KO). Analyst Nicholas Johnson says Coca-Cola Femsa’s second-quarter results were encouraging, given that a worst-case economic scenario seems to be priced in across the company’s most important markets. Johnson says the company’s massive footprint in Latin America gives it flexibility to adjust its merchandising strategy and product portfolio to adapt to market conditions. In addition, the company is focused on improving its product mixes in mature markets like Mexico. Investors also benefit from its 4.7% dividend. Morningstar has a “buy” rating and $60 fair value estimate for KOF stock.
Pilgrim’s Pride Corp. (PPC)
Pilgrim’s Pride is the second-largest U.S. chicken producer. Organic sales were down 12.5% in the second quarter because of European restaurant closures and weakness in Mexico, but chicken prices have fully recovered after dropping 30% in April. Management said the company’s operating margins had also fully recovered to 2019 levels by June, suggesting a brighter second half of 2020 for Pilgrim’s Pride. Scheuneman says restaurants account for 50% of the company’s total sales. But its restaurant exposure is highly skewed toward resilient quick-serve restaurants. Morningstar has a “buy” rating and $32.50 fair value estimate for PPC stock.
Molson Coors Beverage Co. (TAP)
Molson Coors Beverage is one of the largest brewers in the world and owner of brands such as Coors Light, Miller Lite and Molson Canadian. The company has struggled to transition its core brands into higher-end categories. Nevertheless, Johnson says expectations for Molson Coors are extremely low at its current share price, and even mediocre execution by management should be good enough to generate upside for investors. Management announced a revitalization plan in late 2019. Morningstar has a “buy” rating and $55 fair value estimate for TAP stock.
Top-rated consumer staples stocks:
— British American Tobacco (BTI)
— Anheuser-Busch InBev (BUD)
— Coty (COTY)
— Imperial Brands (IMBBY)
— Ingredion (INGR)
— Coca-Cola Femsa (KOF)
— Pilgrim’s Pride Corp. (PPC)
— Molson Coors Beverage Co. (TAP)
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8 Best Consumer Staples Stocks With 5-Star Morningstar Ratings originally appeared on usnews.com