Even in the worst of economies, consumers are going to stock their pantries with paper towels, toilet paper and soap. The simple truth is that many consumers desire to always have these items in abundance and they can often be purchased relatively inexpensively. Consumers also still have a sweet tooth, so soft drinks, beer and chocolate can be found nestled between those dry goods.
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Consumer staples stocks represent companies that produce the goods consumers will buy in both good and bad times. They do the heavy lifting when the economy struggles or when there’s uncertainty in the direction the market may take next. They have traditionally played their broadly defensive role well.
But turbulence can rear its head in even in the calmest sectors of the market. Retails sales flattened from March to April, and many consumer staples ETFs are lagging broader market gains.
Three new headwinds are causing the companies issuing these stocks to become even more wary:
— The rising popularity of weight-loss drugs is completely changing consumer views. Food and beverage companies are seeing decreasing sales, but purveyors of fashion and cosmetics are seeing new upticks as people want to showcase their slimmer bodies.
— Big-box retail giants, such as Costco Wholesale Corp. (ticker: COST) and Walmart Inc. (WMT) are seeking growth through private label branding, where they hope to undercut prices by as much as 20% over the comparative national brand label. Their announcements have allowed both retail giants to gain nearly 30% this year.
— Wage growth remains strong, which will keep the Federal Reserve from lowering interest rates. Shoppers are not totally price adverse in times of inflation, even if they are receiving more money in their paystubs each month.
Despite these challenges, consumers will consistently demand these products, and 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 U.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 in 2023, but lost momentum in 2024. GDP growth came in under initial estimates in the first quarter of 2024.
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. Additionally, they can bolster investor sentiment as they can provide consistency to an investment portfolio, decreasing investor anxiety. This stabilization functionality adds to their crucial role in the overall stock market.
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.
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 typically fairly consistent. In 2024, investors are diving more deeply into many of the consistent players to find new candidates. For example, while Coca-Cola Co. (KO), PepsiCo Inc. (PEP) and many of the beer distributors are regularly cited, Monster Beverage Corp. (MNST) is beginning to attract interest again as it provides a heightened drinking experience at a lower cost than one who purchases both soft drinks and alcohol.
However, even as some of these companies operated successfully for over 100 years, they are not sitting on their laurels. They have to be light on their feet to maintain relevance with the advancement of technology.
Rather, they continue to innovate and make strategic acquisitions of smaller, more nimble competitors to maintain their market positions, such as the 2015 Coca-Cola investment in Monster Beverage, a 16.7% stake that successfully set up their exclusive energy drink play.
Here are eight consumer staples stocks worth considering for 2024:
— Walmart Inc. (WMT)
— Costco Wholesale Corp. (COST)
— Procter & Gamble Co. (PG)
— Coca-Cola Co. (KO)
— PepsiCo Inc. (PEP)
— Philip Morris International Inc. (PM)
— Unilever PLC (UL)
— Anheuser-Busch InBev SA/NV (BUD)
Walmart Inc. (WMT)
Walmart is a multinational retailer with more than 10,500 Walmart stores and Sam’s Clubs locations 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. Walmart CEO Doug McMillon has announced major moves for the company in 2024, with key investments defining a new “Store of the Future” customer experience.
Changes include:
— A 3-for-1 stock split, to enhance opportunities for younger investors and corporate liquidity.
— A billion-dollar remodeling effort designed to more efficiently engage the customer.
— Increased wages for their store management by 9% and bonuses aligned with store profitability, a move that addresses longtime concerns about overall worker compensation.
— Diving more deeply into generative artificial intelligence usage in a partnership with Microsoft.
— Reducing noise and distracting lighting at key times of the day for their elderly and neurodivergent customers. While subtle, it showcases how legendary companies are indeed paying attention to their customers’ evolving needs.
Additionally, Walmart is putting into action their April 2023 announcement to create an electric vehicle fast-charging station network by 2030. With 90% of Americans having a Walmart or Sam’s Club location within 10 miles of their home, CEO Doug McMillon says that they are going to remodel 650 stores across 47 states and Puerto Rico over the next 12 months, and build or convert more than 150 stores in the next five years.
Costco Wholesale Corp. (COST)
Costco is also a multinational retailer, the third-largest in the world. In total revenue, it ranks No. 11 on the Fortune 500 list. A membership-only retailer, Jim Sinegal and Jeffrey Brotman opened the first Costco warehouse in Kirkland, Washington in 1983. In 1993, Costco merged with a competitor, Price Club, after a natural synergy was determined to be more favorable than a competing offer for Price Club from Walmart. Additionally, Sinegal had started his wholesale distribution career working under Price Club’s founder, Sol Price. In 1996, Costco relocated its worldwide headquarters to Issaquah, Washington, another Seattle suburb. Costco has made significant investments in building out its private house label, Kirkland Signature. The company has expanded the value of its membership with Costco Next, limited-time deals from luxury brands such as Viking and Travelpro, as well as other high-dollar purchases such as outdoor sheds.
Costco sells a significant range of inventory, from bulk staple items to caskets to physical gold bars in clean, well-lit stores. Many locations also include auto mechanics, pharmacies and optical/hearing centers. Costco is known especially as the world’s largest retailer of organic beef, chicken and wine. They have successfully co-branded Kirkland Signature products with highly popular national brands, such as Keurig Green Mountain, Ocean Spray and Starbucks. Because the inventory is so varied, veteran shoppers have learned to look for the ‘Death Star’, an asterisk that indicates that the item will not be restocked once it has sold out.
Kirkland Signature has another claim to fame, with its rotisserie chickens flying off the shelves. They are priced at $5, an immensely attractive price during tough economic times. But the birds also regularly win, hands-down, market comparisons for their robust size and immense flavor. Costco also has a rigid two-hour shelf life for their chickens, so they are often hard to find as shoppers purchased 137 million birds in 2023.
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Procter & Gamble Co. (PG)
Procter & Gamble is headquartered in Cincinnati, Ohio. 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 68 years of consecutive annual increases. P&G’s profits rose by 15% in the first quarter, but this was bolstered primarily by price increases in products that had been thinly sold, volume-wise. A testament to its enduring story, Fortune has named P&G to both its World’s Most Admired Companies and America’s Most Innovative Companies lists in 2024.
Coca-Cola Co. (KO)
Coca-Cola is headquartered in Atlanta, Georgia, 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 62 years.
The company has made significant progress with its efforts to build deeper brand connections in experiential settings. In 2023, it paired with the FIFA Women’s World Cup. In 2024, it has launched two Coca-Cola Spiced products, the first North American addition to its lineup in three years. It has also expanded its Alcohol Ready to Drink line, pairings of classic soft drink and spirits. Finally, they will celebrate in Paris a century of being the longest-running Olympic/Paralympic partner. In each of these endeavors, it is linking on-the-ground events and societal themes that complement its 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. Coca-Cola’s earnings have been beaten up by the appreciation of the U.S. dollar, reducing its value by 31% since 2018. However, as economists have discussed the Federal Reserve actions potentially weakening the dollar over the remainder of the year, this could provide new upside for investors.
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 (2018) and Rockstar Energy (2020). This has allowed it to spin off many of its 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. PepsiCo is now the second-largest global food and beverage firm behind Nestle SA (OTC: NSRGY). International consumer demand for soft drinks and snack foods have bolstered its earnings, allowing it to report better-than-expected numbers in the first quarter of 2024. Additionally, PEP has raised its quarterly dividend payout for 50 years in a row, making it a go-to stock for defensive income investors.
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 products, 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. This situation has not alleviated as the strife between Russia and the Ukraine continues and peace continues to be elusive.
PM has committed to earning two-thirds of its revenue from smoke-free products by 2030. Analysts have positively noted PM’s upside potential if it is able to successfully transition its combustibles for potentially less harmful alternatives. PM remains a popular consumer staples stock as the company continues to bring consistent dividend growth to the table. PM has raised its dividend payout for 16 consecutive years and counting, with a 10-year compound annual growth rate of 3.9%.
Unilever PLC (UL)
Unilever, headquartered in London, is a multinational company that offers everything from baby and pet foods to pharmaceutical products and toiletries. The largest soap producer in the world, Unilever has grown through strategic acquisitions such as Ben & Jerry’s in 2000. However, Unilever has been disassembling its growth strategy in order to streamline its focus in four key product areas: Beauty & Well Being, Personal Care, Home Care and Nutrition. Toward that goal, it just completed the sale of Elida Beauty in early June 2024 (including popular name brands such as Q-Tips, St. Ives, Ponds and Brut) to Yellow Wood Partners, a private equity firm.
As part of Unilever’s plans to focus on Nutrition, it’s chosen to divest its entire ice cream division, including the iconic Ben & Jerry’s and Magnum brands. This divesture may also be able to mend a very bitter rift that has occurred between the corporate giant and its largest purpose-driven brand. Even before tensions escalated between Israel and Palestine in October 2023, Ben & Jerry’s had been seeking to terminate licensing agreements in Israel that dated back to 1987. The entire ice cream unit, with five of the 10 world’s best-selling ice cream brands, will become a new distinct company expected to be worth $8 billion. Wall Street has positively viewed Unilever’s laser focus on the remaining 30 brands that represent 70% of its sales and increasing market share in the remaining brands.
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 that would ultimately cause Bud Light to lose its position as the No. 1 selling U.S. beer brand. While the controversy temporarily decimated the company’s share price, BUD successfully inked a multiyear partnership with the Ultimate Fighting Championship in October 2023 and debuted as the UFC’s exclusive beer sponsor on New Year’s Day 2024.
AB InBev has also been working to move production closer to its points of sale. In the U.S., that has already occurred with its Stella Artois, Bass and Beck’s brands. In June 2024, AB InBev announced that it had secured the necessary permits and ingredient requirement exceptions to brew Corona Extra in Wernigerode, Germany. AB InBev was able to narrowly avert a key union strike in February 2024 by increasing compensation by an average of 23%, as well as enhancing job protections, vacation and pension benefits. Following this critical agreement, AB announced a new infrastructure endeavor worth $15.5 million at its Fort Collins, Colorado production facility. Expected to be completed by summer 2024, the project will upgrade its bottling lines from packed glass to bulk glass. AB believes this activity will not only strengthen its supply chain among, but will also create new new technical capabilities among its workforce and enhance its corporate responsibilities in reducing carbon emissions.
Consumer staples stocks are not without risk. In 2023, these stocks fell out of favor as investors looked to new technologies like artificial intelligence to diversify their portfolios. Firms today are facing the three headwinds of new pharmaceuticals, privately labeled products and continued economic hurdles — all of which can cause any of these companies to lose value. But ultimately, these stocks can also serve as strong defensive anchors in an investor’s portfolio when the economy becomes unsettled.
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8 Best Consumer Staples Stocks to Buy Now originally appeared on usnews.com
Update 06/18/24: This story was previously published at an earlier date and has been updated with new information.
