Look to consumer staples stocks for consistency.
The S&P 500 has fallen about 9% year to date as of Feb. 28, and macroeconomic factors cast a gloomy cloud over the markets. Inflation, supply chain and labor market woes continue in the face of tightening monetary policy and a dreary geopolitical situation. Amid these conditions, investors may be wondering where to shelter. Offering everyday products, the consumer staples segment presents an opportunity for reliable, steady growth and includes companies that retail or produce foods, beverages, household products and personal items. Recent reports from Bank of America shed a positive light on consumer spending patterns and show consumer demand remains high. Total spending on credit and debit cards increased 12.3% year over year as of early February, and about 90% of consumers expect to spend more or the same on groceries, household goods and personal products in the next three months. With this in mind, here are seven of the best consumer staples stocks to buy.
Walmart Inc. (ticker: WMT)
Headquartered in Bentonville, Arkansas, Walmart offers “everyday low prices” on consumer products at more than 5,300 U.S. locations. Online retail, fuel centers, in-store services and wholesale subsidiary Sam’s Club provide additional revenue streams, with U.S. e-commerce sales growing 11% year over year and surging 90% over two years at the end of the company’s fiscal 2022. As one of the final links in the consumer supply chain, Walmart is the biggest customer for consumer staples giants such as Procter & Gamble Co. (PG), General Mills Inc. (GIS) and Kellogg Co. (K). With volume-based leverage over these relationships and a network of 210 distribution centers, Walmart’s scale allows it to maintain low costs and consistent margins. Online, Walmart+, a subscription service offering free shipping and other savings, increasingly competes with Amazon Prime, and its little-known advertising business notched $2.1 billion in high-margin revenue in 2021. “Walmart remains one of our top ideas,” says Guggenheim research analyst Robert Drbul.
Costco Wholesale Corp. (COST)
Costco is the world’s third-largest retailer, operating more than 800 members-only warehouses and selling everything from groceries and household products to appliances and electronics. Like Walmart, Costco uses high volume purchasing and efficient distribution to maintain better gross margins than traditional retailers. In the first quarter of fiscal 2022, revenue grew 16.7% to $49.4 billion and net income topped $1.3 billion. With more than 113 million members and a 91.6% renewal rate, Costco has cultivated a dependable customer base that is unlikely to ditch the company anytime soon. “Due to its size and purchasing concentration, Costco has nearly unrivaled buying power and, when combined with one of the lowest product markups in retail, we believe the extreme value it offers to its members likely provides Costco with the highest barriers to entry in retail,” says Truist analyst Scot Ciccarelli.
Estee Lauder Cos. Inc. (EL)
Founded in 1946, Estee Lauder manufactures and sells prestige beauty products across the globe, including well-known brands such as Aveda, Clinique, Michael Kors and Tom Ford Beauty. “Remarkably, 25% of all beauty products purchased at Macy’s are a Clinique product,” says Morningstar analyst Rebecca Scheuneman, underscoring its deep market penetration. Even then, market share growth exists with accretive acquisitions and international expansion. The company recently increased its investment in Deciem Beauty Group Inc. from 29% to 76% and agreed to purchase the remaining interest in three years. Internationally, “the company appears especially well positioned to benefit from both a rise in Chinese consumer spending and a channel shift to e-commerce globally,” says RBC analyst Nik Modi. Fiscal 2022 second-quarter results, released in February, showed organic revenue advancing 14% to $5.5 billion and guided for revenue growth of between 13% and 16% for the full fiscal year.
Kraft Heinz Co. (KHC)
In 2015, Kraft Food Groups Inc. merged with H.J. Heinz Co. to form Kraft Heinz, becoming the third-largest food and beverage producer, with brands like Oscar Mayer, Jell-O and Velveeta. The stock is up 13.1% as of Feb. 28 after full-year 2021 results released on Feb. 16 showed net income increased from $356 million to more than $1 billion. What’s more, the company says that the next phase of its strategic plan should deliver $2 billion of gross efficiencies and boost long-term earnings-per-share growth by two percentage points. The same day this plan was announced, Kraft Heinz announced a joint venture with plant-based food tech business TheNotCompany Inc., embracing an emerging trend to supplement its portfolio of legacy brands. “Despite the jolt from COVID-19 and recent inflationary and supply chain headwinds, we don’t believe Kraft Heinz will veer from its current playbook,” says Morningstar analyst Erin Lash.
Coca-Cola Co. (KO)
The quintessential consumer staple, Coca-Cola began in 1886 with one special syrup and now controls a swath of iconic beverages. With a stranglehold on Americans’ favorite drinks, this consumer staple offers stable, steady share price growth and an ever-expanding dividend. In 2021, net revenues grew 17% to $38.7 billion and earnings per share grew 26% to $2.25 per share. During the year, Coca-Cola acquired the remaining 85% of sports performance beverage company Bodyarmor for $5.6 billion, helping push the sports drink segment up 18% year over year. “Assuming Bodyarmor growth continues to expand at a 30% to 40% rate in 2023, this could provide an additional 3% of organic growth to the North America segment,” says Guggenheim analyst Laurent Grandet. Following earnings, Coca-Cola’s board of directors approved the 60th consecutive dividend increase, up 5% to $1.76 annually.
Diageo PLC (DEO)
Formed in 1997 following the merger of Guinness Brewery and Grand Metropolitan, Diageo is a British multinational company that distills and markets liquor brands such as Johnnie Walker, Bulleit, Crown Royal, Casamigos and Smirnoff. DEO stock has climbed steadily since the start of the pandemic after consistently strong sales and earnings results. Controlling more than 200 brands and operating in more than 180 countries, the company has diversification across products and markets, making it resilient in varying economic conditions. The first half of fiscal year 2022 results, released in January, saw organic sales climb 20% and operating profit increase 24.7%. “Full year 2022 increasingly looks set for another year of strong organic earnings before interest and taxes growth helped by continued U.S. momentum and recovery of the more profitable on-trade beer business in Europe, which should offset lingering raw material inflationary pressures,” says JPMorgan analyst Celine Pannuti.
British American Tobacco PLC (BTI)
Headquartered in London, British American Tobacco manufactures and sells cigarettes, tobacco and other nicotine products. The stock has had a good start to 2022, up about 18% year to date as of Feb. 28, and 2021 results, released in early February, saw revenue climb 6.9%. From a valuation perspective, the company has an attractive price-earnings ratio of 11.3, significantly lower than key competitors Philip Morris International Inc. (PM) and Altria Group Inc. (MO). British American Tobacco also pays one of the highest dividends among peers, offering a 6.7% dividend yield and a 55% payout ratio. That said, traditional tobacco sales have been steadily declining as the number of smokers decreases. “The combustible volume decline of 0.3% was slightly weaker than that reported by PMI, but this was mitigated by strong growth in new categories, which now represent 12% of revenue,” says Morningstar analyst Philip Gorham.
Seven best consumer staples stocks to buy now:
— Walmart Inc. (WMT)
— Costco Wholesale Corp. (COST)
— Estee Lauder Cos. Inc. (EL)
— Kraft Heinz Co. (KHC)
— Coca-Cola Co. (KO)
— Diageo PLC (DEO)
— British American Tobacco PLC (BTI)
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7 Best Consumer Staples Stocks to Buy Now originally appeared on usnews.com
