Consumer staples may be on the brink of a breakthrough.
Rahm Emanuel, former President Barack Obama’s chief of staff, once famously said of a particularly thorny public policy problem: “Never let a good crisis go to waste.” It turns out the old adage is true on Wall Street, too, where smart traders often see opportunity where others see carnage. That’s the case with consumer stocks these days. Thanks to high inflation and high prices, 2022 hasn’t exactly been kind to the consumer staples sector. The benchmark Consumer Discretionary Select Sector SPDR Fund’s (ticker: XLY) one-year performance is down a substantial 36.6% as of Dec. 22. But change is in the air heading into 2023, and consumer confidence will keep rising as prices come down on everything from golf balls to gasoline. For those reasons and the simple fact that people need to eat, drink and practice good hygiene in any economy, it’s a good idea to check out this list of consumer stocks — and buy them before prices start climbing.
McCormick & Co. Inc. (MKC)
Consumer stocks are, in large part, about reliability and steady income, and McCormick delivers in both areas. On Dec. 3, McCormick announced that it would hike its dividend payment to 39 cents a share. It’s the 37th straight year that the company has boosted its dividend. The Maryland-based provider of spices and food flavorings also held its own in the third quarter of 2022, reporting net income of $222.9 million (82 cents per share) against $212.4 million (79 cents per share) in the same quarter of 2021. The firm’s recent purchase of brands French’s and Frank’s puts McCormick front and center in the burgeoning hot sauce and condiments food sector, as consumers diversify their food tastes. With a firm foot in its primary industry, McCormick should be one ingredient in your 2023 portfolio strategy.
Hormel Foods Corp. (HRL)
Hormel is trading down 5% as of Dec. 22, but that’s still significantly ahead of the S&P 500 index, which is down 19.8% for the year. The manufacturer may be largely known for its Spam brand of canned meats and its flagship Skippy peanut butter, but the Minnesota-based company has diversified in recent years. Now, with the incorporation of guacamole and salsa, among other food products, Hormel is catering to the evolving tastes of the dining public. Well aware of the angst among investors in a sluggish market, Hormel also recently boosted its annual dividend by 6% — its 57th consecutive increase. That raises the company’s quarterly dividend to 27.5 cents per share, payable on Feb. 15, 2023.
Hershey Co. (HSY)
Hershey is one of only a handful of consumer staples companies to see its stock price rise more than 20% in 2022. The manufacturer of well-known chocolate confectionary products such as Reese’s Peanut Butter Cups and Kit Kat, Hershey is earning solid reviews from industry analysts going into 2023. “Heading into (reporting season), we were concerned that investors’ expectations were getting ahead of themselves,” UBS analyst Cody Ross said in a November research note. “However, (Hershey) cleared a high bar, aided by 1% of retailer inventory replenishment and 2% of earlier seasonal shipments.” Ross also cited Hershey’s “high-quality earnings” and “significant outperformance” in North American operations. Stacked together, Hershey’s earnings and growth feats make HSY a sweet option for defensive-minded investors in 2023.
Procter & Gamble Co. (PG)
Procter & Gamble is another dividend slayer, with 66 straight consecutive years of dividend hikes — and a 2.4% yield on the current share price. Consensus analyst expectations for PG are on the upside, with earnings per share rising 7.3% and revenue up 3.6% through June 2024. Meanwhile, Proctor & Gamble has beaten analyst consensus estimates in three of four trailing quarters. With the stock price already up about 12% over the past 90 days, investors might not want to delay grabbing one of America’s most celebrated consumer staples stocks.
Estée Lauder Cos. Inc. (EL)
Like a lot of other consumer staples companies, Estée Lauder has had its share of troubles in 2022. Its share price is down 33.9% on a year-to-date basis as of Dec. 22, but the stock bounced back in a big way this month, rising 9.3%. On Dec. 19, Morgan Stanley analyst Dara Mohsenian held his “buy” rating on EL, calling a price target of $271. Analyst Steve Powers at Deutsche Bank also weighed in on EL this month, noting that Estée Lauder should rebound in a big way once China reopens completely after pandemic-related mandates hurt consumer staples like EL. “We don’t expect progress to be quick or linear given still-elevated COVID case counts and relatively low vaccination rates,” Powers said in a recent research note. “However, we do expect forward momentum to build on a net basis over the next six-plus months such that a fuller, more rapid reopening is possible in mid-2023.” Powers set a price target of $266 for the stock, which closed at $242.22 on Dec. 22.
Diageo PLC (DEO)
What Hershey is to chocolates, Diageo is to liquors. That’s no hyperbole, as the consumer spirits giant holds prime-time brands such as Johnnie Walker, Tanqueray, Smirnoff, Don Julio and Buchanan’s, along with pub favorite Guinness beer. Diageo is also known to be one of Warren Buffett’s favorite consumer stocks, likely due to the resiliency liquor-related companies show during both good and bad economic times. Diageo’s recent internal guidance bore that sentiment out, stating it could meet an organic compound annual growth rate of between 6% and 9% in the next three fiscal years. With a decent dividend yield of 2%, DEO offers investors a chance to partake in one of the world’s most well-positioned spirits stocks.
Clorox Co. (CLX)
Clorox stock has plummeted since 2020, when the global pandemic had anxious consumers lining up to buy cleaning supplies, and the company’s disinfectant wipes were in high demand. At the time, CLX’s share price rose to $240. As of market close on Dec. 22, Clorox was trading at $145.40, and its share price had fallen 14% year to date. Even so, Clorox has a good story to tell heading into a recessionary climate. Its stable of brands, which include Liquid-Plumr, Pine-Sol, Glad, Brita and Burt’s Bees, continues to garner robust consumer demand in more than 100 countries. The company also offers shareholders a dividend yield of 3.25% and has boosted its dividend for 45 straight years. Clorox isn’t all about cleaning products, either, with big brands in the kitty litter, salad dressing and charcoal spaces, among others. When inflation does recede — and it will — Clorox should stand tall as one of the best-earning and best-paying dividend consumer brands in the world.
7 best consumer staples stocks to buy right now:
— McCormick & Co. Inc. (MKC)
— Hormel Foods Corp. (HRL)
— Hershey Co. (HSY)
— Procter & Gamble Co. (PG)
— Estée Lauder Cos. Inc. (EL)
— Diageo PLC (DEO)
— Clorox Co. (CLX)
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Update 12/23/22: This story was published at an earlier date and has been updated with new information.