Go into most modern pantries, and you will find them stocked with paper towels, toilet paper, soap, soft drinks and beer. The simple truth is that many consumers desire to always have these items in abundance.
Consumer staples stocks represent companies that produce goods consumers will buy in both good and bad times. They do the heavy lifting when the economy struggles or there is uncertainty in the direction the market may take next. Consumers will consistently demand these products, but shoppers are not totally price adverse in times of inflation. Rather, they may seek to save money by buying items in bulk or at big-box stores. Either way, they will still look for the opportunity to 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 domestic product, or GDP. Americans understand how well the economy is doing by watching how much GDP grows or shrinks from one period to another. Consumer spending was a key driver of strong U.S. economic growth this year, despite the higher interest rates related to the Fed working to combat elevated inflation.
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 describes consumers’ 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 typically makes them a low-risk haven for investors in inflationary and recessionary times. Consumer staples stocks also are likely to have rich and consistent dividend yields.
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Consumer staples stocks are not without risk. In 2023, these stocks fell out of favor as investors looked to new technologies, such as artificial intelligence, to diversify their portfolios. Many firms also met challenges from unexpected sources. For example, snack and beverage stocks lost value over investor concerns about the impact of new weight-loss drugs, such as Ozempic and Mounjaro.
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. They also have to be light on their feet to maintain relevance with the advancement of technology.
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 worth considering for 2024:
— Walmart Inc. (ticker: WMT)
— Procter & Gamble Co. (PG)
— Coca-Cola Co. (KO)
— PepsiCo Inc. (PEP)
— Philip Morris International Inc. (PM)
— Anheuser-Busch InBev SA/NV (BUD)
— Unilever PLC (UL)
— Nestle SA (OTC: NSRGY)
Walmart Inc. (WMT)
Walmart is a multinational retailer with more than 10,500 Walmart stores and Sam’s Clubs in 19 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 it went public in 1972. In April 2023, Walmart announced plans to create an electric vehicle fast-charging station network at thousands of its U.S. locations, with expected completion in 2030. With 90% of Americans having a Walmart or Sam’s Club location within 10 miles of their home, this network is expected to hasten the adoption of EVs, especially in smaller, rural communities. Certainly, the charging time would add incentive for consumers to shop their stores, potentially driving sales further upward.
Procter & Gamble Co. (PG)
Procter & Gamble 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. P&G has experienced recent headwinds with the limited restructuring of Gillette, which it purchased in 2005.
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. The company has made significant progress with its efforts to build deeper brand connections in experiential settings, most recently with the 2023 FIFA Women’s World Cup. In doing so, they are linking on-the-ground events and societal themes that complement their deep brand reach. When Warren Buffett, a Pepsi drinker for nearly 50 years, converted to Coke, Coca-Cola’s reputation as one of the best consumer staples stocks was sealed. Berkshire Hathaway Inc. (BRK.A, BRK.B) became Coca-Cola’s largest shareholder, and the investment proved pivotal in Buffett’s current investment philosophy.
PepsiCo Inc. (PEP)
PepsiCo was formed in 1965 with the merger of the Pepsi-Cola and Frito-Lay. While both Pepsi and Coca-Cola are well known for their bitter rivalry, Pepsi has more fully diversified into food and non-soda beverages with acquisitions resulting in 23 household brands, such as Lay’s Potato Chips, Cheetos, Gatorade and Tostitos. In recent years, PepsiCo completed the purchase of SodaStream and has begun to spin off many of their juice brands to answer criticism over its poor nutritional offerings. Pepsi has long battled its status as one of the top environmental polluters in the world in terms of plastics usage, deforestation and overconsumption of water resources. Pepsi-Co is now the second-largest global food and beverage firm behind Nestle.
Philip Morris International Inc. (PM)
Philip Morris International holds its legal seat in Stamford, Connecticut, but its operational headquarters are in Lausanne, Switzerland. Phillip Morris is a controversial holding for some 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. The company admitted that it may never exit the lucrative Russian market due to bureaucratic difficulties with the Kremlin. Despite the number of smokers continuing to rise globally, PM has committed to earning two-thirds of its revenue from smoke-free products by 2030. PM remains a popular consumer staples stock as the company continues to bring consistent dividend growth to the table.
Anheuser-Busch InBev SA/NV (BUD)
Anheuser-Busch InBev is the largest brewer in the world, with more than 500 brands in 100 countries. The firm is based in Leuven, Belgium with an additional global management office in New York. BUD had been diversifying into non-alcoholic beverages, including the viability of cannabis-infused products. Anheuser-Busch had been the largest brewing company in the U.S. with the popular Budweiser brand before a major PR stumble in 2023 with its core customers, resulted in an ongoing boycott. While the controversy temporarily decimated the company’s share price, BUD successfully inked a multiyear partnership with the Ultimate Fighting Championship in October 2023. Debuting on New Year’s Day 2024, Bud Light will be the UFC’s exclusive beer sponsor. BUD’s revenue has been steadily increasing and delivered growth in the majority of its markets since fall.
Unilever PLC (UL)
Unilever, headquartered in London, is a multinational company that offers everything from baby and pet foods to pharmaceutical products and toiletries. Unilever is the largest soap producer in the world, but has grown through strategic acquisitions such as Ben & Jerry’s in 2000. In keeping with earlier plans to streamline their product line, the company is currently in advanced negotiations to sell Elida Beauty, with brands including popular Q-Tips, St. Ives, Ponds and Brut, to private equity firm Yellow Wood Partners. Unilever wants to focus solely on the 30 brands that represent 70% of its sales and increase market share in the remaining brands. The firm has become a target for the U.K.’s Competition and Markets Authority in “greenwashing” investigations to assess corporate claims about their products’ impact on the environment. No evidence has been established against Unilever in this preliminary inquiry. Unilever has strong core brands, with 80% of their brands holding first or second position in their category. As a result, UL has continued to steadily hike prices.
Nestle SA (OTC: 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 in 1867. Today, Nestle offers a wide range of food and drink products while also continuing to be a large shareholder in L’Oreal SA (OTC: LRLCF), another perennial favorite among consumer staples stocks. Like Unilever, Nestle has grown by key corporate acquisitions, such as Libby’s (1971) and Gerber (2007). Like many of its competitors, Nestle is seeking to reduce its negative environmental impact and increase its healthy, plant-based offerings. In 2021, Nestle purchased Bountiful Co., whose brands include Nature’s Bounty and Osteo Bi-Flex, to take a leading position in global nutrition. More recent deals include the planned acquisition of a majority stake in premium chocolate manufacturer Grupo CRM, announced in September 2023. Nestle’s stated goal is to “make good nutrition accessible and affordable.” In doing so, it has continued to maintain its dominance as the world’s largest publicly held food company.
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8 Best Consumer Staples Stocks to Buy Now originally appeared on usnews.com
Update 12/28/23: This story was previously published at an earlier date and has been updated with new information.
