When you make a grocery list, it’s likely that paper towels, toilet paper and soap will be on it. The simple truth is that no matter what the economy is like, consumers need these items.
Consumer staples stocks represent companies that produce goods consumers will buy in both good and bad times. They are especially called upon to do heavy lifting when the economy struggles. Consumers will consistently demand these products, but shoppers are not totally price adverse. Rather, they may seek to save money by buying items in bulk or at big-box stores. Either way, they will still make the purchase.
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The best part of consumer staples stocks is they represent goods that everyday people understand and use regularly.
Consumer staples stocks include companies in the following industries:
— Household products.
— Food products.
— Beverages.
— Personal and hygiene products.
— Food and staple retailing.
— Tobacco and alcohol.
Why Are Consumer Staples Stocks Important?
Economic cycles are defined by the growth or decline in people’s spending habits. As a consumption economy, consumer spending comprises nearly 70% of the country’s gross national product.
Many purchases are cyclical, meaning that consumers may choose to spend more when they feel the economy is strong or delay a purchase during high inflation or recessionary periods. These ebbs and flows define price elasticity — an economic concept that encompasses a consumer’s willingness to change their spending habits based on price changes.
However, consumer staples are considered to be noncyclical, meaning they are always in demand. This decreases price elasticity due to the steady demand.
How Do Consumer Staples Stocks Fit into an Investment Portfolio?
Typically, investors use bonds and cash to manage risks. However, consumer staples stocks are a defensive option that can be layered in to create both growth and income.
These stocks typically do not create spectacular growth opportunities and may still lose value as interest rates rise. However, they tend to decline less than other sectors during recessions. Some industries — such as food, tobacco and alcohol — may actually see higher demand during economic downturns.
Because of the constant demand, consumer staples stocks are characterized by steady growth. This makes them a low-risk haven for investors in inflationary and recessionary times. Consumer staples stocks also typically have rich and consistent dividend yields.
Consumer staples stocks may be purchased individually or through mutual funds or exchange-traded funds that specialize in this sector. However, these stocks still need to be reevaluated when the economy changes course to ensure the portfolio meets the risk needs of the investor.
Which Consumer Staples Stocks Are the Best?
The major stocks that hit most “best” lists are fairly consistent.
However, even as some of these companies operated successfully for over 100 years, they are not sitting on their laurels. Rather, they continue to innovate and make strategic acquisitions of smaller, more nimble competitors to maintain their market positions.
A financial advisor can work with you to determine which of these stocks or other consumer staples stocks may be best for you. A certified public accountant or other tax advisor can also help you understand the tax implications of dividends.
Here are eight consumer staples stocks that are well positioned in 2023:
— Procter & Gamble Co. (ticker: PG)
— Coca-Cola Co. (KO)
— Unilever PLC (UL)
— Nestle SA (NSRGY)
— Estee Lauder Cos Inc. (EL)
— Walmart Inc. (WMT)
— Philip Morris International Inc. (PM)
— Kroger Co. (KR)
Procter & Gamble Co. (PG)
Procter & Gamble Co. is headquartered in Cincinnati. It was founded in 1837 by a British candlemaker, William Proctor, and an Irish soapmaker, James Gamble, who both immigrated to America and settled in Ohio. Procter and Gamble met two sisters whom they wed. P&G was founded after their new mutual father-in-law suggested they become business partners. P&G offers a range of personal care, hygiene and health products. In the last decade, P&G streamlined its brands to focus on those that comprised 95% of its profits. P&G also brings strong dividend history to the table with 67 years of consecutive annual increases.
Coca-Cola Co. (KO)
Coca-Cola Co. is headquartered in Atlanta and is considered one of the world’s most valuable brands. The company started in the late 19th century as a temperance drink invented by John Stith Pemberton who sold the rights in 1888. The original formulation is a highly guarded corporate asset. Coca-Cola continues to show strong earnings and has been raising its dividends consistently for the past 61 years. Warren Buffett’s company Berkshire Hathaway Inc. (BRK.A, BRK.B) is its largest stakeholder, helping to seal its reputation as one of the best consumer staples stocks.
Unilever PLC (UL)
Unilever, headquartered in London, is a British-Dutch multinational company that offers everything from baby and pet foods to pharmaceutical products and toiletries. It was created in 1929 with the merger of soapmaker Lever Brothers and margarine producer Margarine Unie. Unilever is the largest soap producer in the world, but has grown over the century through strategic acquisitions such as Lipton (1971) , Ben & Jerry’s (2000) and Dollar Shave Club (2016). The company is currently down 15% from a three-year high due to efforts to streamline its product line and to focus on faster-growing brands. However, through its strong core brands and pivotal moves, UL has been able to steadily hike prices. With increasing exposure to emerging markets and a generous dividend yield, UL remains a staple in many portfolios.
Nestle SA (NSRGY)
Nestle is headquartered in Vevey, Switzerland. The company was founded in 1905 by a merger of the Anglo-Swiss Milk Company and a baby food company started by Henri Nestle. Today, Nestle is the largest publicly held food company in the world, offering a range of food and drink products. It’s also a main shareholder in L’Oreal, another perennial favorite among consumer staples stocks. Like Unilever, Nestle has grown by key corporate acquisitions, such as Libby’s (1971) and Gerber (2007).
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Estee Lauder Cos. Inc. (EL)
Estee Lauder is headquartered in the General Motors Building in New York City. As one of the largest cosmetics companies in the world, Estee Lauder offers cosmetics, hair care products and fragrances. Its portfolio includes well-known brands such as Aveda, Bobbi Brown and Clinique, among others. Estee Lauder and her husband, Joseph, created a skin care line in 1946. A year later, they got their first major order from Saks Fifth Avenue. Organic growth turned to an acquisition focus in the 1990s. Estee Lauder went public in 1995. The company has continued to make strategic acquisitions, including the headline-making news it had acquired the Tom Ford designer fashion house in 2022. Interestingly, the company pivoted well during the COVID-19 pandemic when social distancing and work-from-home opportunities reduced the demand for cosmetics. Investors like this stock for its rare ability to generate higher growth than many of its peers, while enjoying the general stability of the sector.
Walmart Inc. (WMT)
Walmart is headquartered in Bentonville, Arkansas, the location of the first stores. Founded in 1962 by brothers Sam and James “Bud” Walton, Walmart is a multinational retail corporation with over 10,500 Walmart stores and Sam’s Clubs in 20 countries. Walmart is the world’s largest company by revenue, the world’s largest private employer with 2.1 million employees and the largest U.S. grocery retailer. Walmart is still controlled by the Walton family, but became publicly traded in 1972. In April 2023, Walmart announced plans to create an electric vehicle fast-charging station network at thousands of its U.S. locations. “We are uniquely positioned to deliver a convenient charging option that will help make EV ownership possible whether people live in rural, suburban or urban areas,” stated Vishal Kapadia, Walmart senior vice president of energy transformation. With 90% of Americans having a Walmart or Sam’s Club location within 10 miles of their home, this network could hasten the adoption of EVs. And certainly, the charging time would allow consumers to shop their stores, potentially driving sales further upward.
Philip Morris International Inc. (PM)
Philip Morris International holds its legal seat in Stamford, Connecticut, but its operational headquarters are in Lausanne, Switzerland. The company’s history dates back to 1847 when Philip Morris operated a single tobacco and cigarette shop in London. However, Morris’s son, Leopold, paired up with Joseph Grunebaum in 1881 and launched what became Philip Morris & Co. Ltd. Known for its iconic brand, Marlboro, Philip Morris became the world’s top-selling cigarette brand in 1972. Phillip Morris remains a controversial holding in light of environmental, social and governance, or ESG, screening, due to the addictive nature of its product, as well as market exposure to Russia in the height of the Ukraine conflict. However, it remains a popular consumer staples stock because the number of smokers continues to rise globally, and the company brings 14 years of consistent dividend growth to the table.
Kroger Co. (KR)
Headquartered in Cincinnati, Kroger was founded by Bernard Kroger in 1883. Kroger is the second biggest grocer by market share in the U.S. What puts the company on the radar is a $24.6 billion agreement announced in October 2022 to acquire Albertsons Companies Inc. (ACI). Kroger made a decision to enhance its online shopping experience to match its in-store success and sees Albertsons as the best path to do so. While most consumer staples stocks do not generate significant growth opportunities, this acquisition is expected to be a game-changer and create competition with Walmart. However, there are significant antitrust hurdles to overcome. So, the transaction may not close, which could depress the price of both companies tremendously. It’s also expected to be a long-term deal involving significant debt during a historically high interest rate period. Therefore, like all investments, it is best to weigh the risk with a professional advisor.
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8 Best Consumer Staples Stocks to Buy Now originally appeared on usnews.com
Update 04/27/23: This story was previously published at an earlier date and has been updated with new information.
