Best Consumer Staples Stocks To Buy: Consumer staples are products that are essential or necessary for basic living. In other words, these are products that people are unwilling or unable to do without even at the times of financial stress.
This sector, also known as the consumer defensive sector, includes products, such as food, beverages, hygiene products, personal products, and household goods among others. It also includes companies that sell:
- alcohol, or
- pharmaceutical drugs
Consumer staples are non-cyclical in nature; their demand remains constant irrespective of the condition of the economy.
Their price inelasticity is high, i.e., the change in price is not going to tamper with their demand. For example, at times of economic upheaval consumers are most likely to defer purchase of an expensive perfume or a handbag, but they simply cannot discard their toothpaste or their soap.
As such, the demand for consumer staples remains more or less impervious to price changes or the state of the economy.
Consumer staples consist of three main industry groups:
- Household and personal products
- Beverage and tobacco
- Food and staples retailing
Consumer spending constitutes for around 70% of the nation’s gross national product (GNP). As such, consumer spending holds a lot of sway over how the economy performs.
Although consumer spending on the whole is cyclical (meaning there are times when the consumer may spend liberally and times where they may adopt a conservative approach to their spending habits), consumer spending on goods produced and sold by the consumer staples sector is more or less non-cyclical. Their demand will be fairly stable year-round irrespective of the financial situation.
There may be no substitute for consumer staples goods, but there is always plenty of options when it comes to such goods. You cannot go without brushing your teeth, but then you have plenty of options when it comes to selection of your toothpaste.
The competition in this industry is pretty intense, which means firms have to adopt new technologies and innovative processes to offer good products to their customers at a lower price.
Investing in consumer staples
A very important thing to note is that the consumer staples sector had an enviable track record of outperforming the S&P 500 during the last three recessionary periods.
With the threat of recession looming on the horizon because of the coronavirus (COVID-19), it is perhaps the best time to turn your attention towards consumer staples companies.
They enjoy consistent demand for their products even in a bearish market. In fact, demand for products such as tobacco, alcohol, and food go up during times of economic distress.
Consumer staple stocks are generally regarded as less volatile, offer good dividends, and tend to continuously increase their payouts.
They also play an important part in portfolio diversification because of the contrasting role they play to the broader market during times of recession. Keeping all these factors in mind, we present here top consumer staples that should be definitely on your radar right now.
Unprecedented surge in demand for Clorox cleaning and disinfecting products
The Clorox Company [NYSE: CLX] is a leading multinational manufacturer, marketer, and seller of consumer and professional products in the U.S. and the international markets.
Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products; Pine-Sol® cleaners; Liquid Plumr clog removers; Poett home care products; Kingsford charcoal; Hidden Valley dressings and sauces; Brita® water-filtration products; Burt’s Bees natural personal care products, and Neocell dietary supplements among others.
More than 80% of the Oakland, CA, headquartered company’s sales are generated from brands that hold the No. 1 or No. 2 market share positions in their categories.
Clorox Company [NYSE: CLX] has long been a buy-and-hold staple of long-term oriented investors’ portfolios.
Clorox is a leading bleach and cleaning products supply company, and with the US strongly in grips of the COVID-19 contagion, the company is making hay while the sun shines brightly on its products.
The global coronavirus pandemic and the fear it unleashed ensured that bleach, spray disinfectants, and wipes made by the company quickly ran out of stocks. However, it will not be the same forever.
The pandemic sooner or later will be over and things will eventually return to normal. Does it mean, the company will fall on the terra firma with a thud once life resumes as normal? Not necessarily!
The virus contagion has ensured that things are never going to be the same again — ever. The realization that something invisible to the naked eyes can prove to be so devastating will continue to play on consumers’ mind and behavior for years to come.
Now onwards, we will all be putting in a little extra effort in spraying and wiping down our homes. It means what was a good stock before the outbreak is now an exceptional stock to own.
Clorox, however, is not only about bleach and disinfectants. It has a knack of manufacturing low-cost, consistently reliable products that consumers are loyal to and keep purchasing without a second thought.
The company has created what it calls the Clorox Open Innovation group, a taskforce entrusted with the task of coming up with pioneering ideas to aid CLX manufacture innovative products. The end result is years of consistent growth in sales and revenue.
Clorox is not a growth stock, to be clear. It is a steady stock to own. Do not expect the stocks to shoot up through the roof in a short period of time. But for investors who have time and patience, Clorox is an easy investment decision to make.
The dividend yield of just under 2.5% is good by industry standards, and CLX has been a reliable dividend payer for over 43 consecutive years. CLX is expected to release its next earnings report by May 1, 2020.
Analysts’ estimate the earnings per share (EPS) to be $1.56, up 8.33% from the prior-year quarter. The revenue is expected to be around $1.63 billion, an upswing of 5.23% from the prior-year quarter.
For the year, the consensus estimate is EPS of $6.47 and revenue of $6.32 billion, which would represent changes of +2.37% and +1.67%, respectively, from the prior year. All in all, you have a clear winner here!
Johnson & Johnson delivers solid first quarter results
Johnson & Johnson [NYSE: JNJ] is the world’s largest and most broadly based healthcare company. The 130-year old company develops medical devices, pharmaceutical, and consumer packaged goods.
The American multinational corporation operates 260 subsidiary companies with products sold in more than 175 countries. The New Brunswick, New Jersey-based company product line includes Johnson’s Baby products, Tylenol medications, Band-Aid, Neutrogena skin and beauty products, vaccines, and eye heath products among others.
Things have been pretty troublesome of late for Johnson and Johnson [NYSE: JNJ]. Shares plunged from $153.50 in February to a dismal $109 in March, a steep slide of around 29%. However, what is comforting is the fact that the broader market’s performance during the same period has been even more dismal.
Share price of the healthcare giant though now is around 13% higher than its March lows, the rebound was most probably driven by the COVID-19-related announcement.
It is believed that the company is on a fast-track mode to develop COVID-19 vaccine, with Phase 1 trials expected to begin no later than September, and the vaccine to be available by early 2021.
Johnson & Johnson had a pretty average year in 2019 as well. The stock was up 13%, but it pales in comparison to the handsome gains returned by the S&P 500 index.
J&J has been struggling with opioid-related litigation, talcum powder cancer charges, and downbeat growth. Other problematic areas for the conglomerate include fast declining sales of its immunology drug Remicade, cancer drug Zytiga, and diabetes drug Invokana.
On the positive side, strong sales growth of immunology drugs Stelara, Simponi, and Tremfya is compensating for the sliding sales of Remicade.
J&J’s cancer drugs Imbruvica and Darzalex are doing well, and its depression drug Spravato is another blockbuster in the making. Successful development of COVID-19 vaccine will be a great morale booster and can take Johnson & Johnson to a new altitude.
Despite all these factors and other businesses suffering tragic fate owing to the COVID-19 pandemic, Johnson & Johnson delivered solid results.
The healthcare behemoth’s sales rose 3.3% to $20.7 billion in the first quarter. Those gains were driven by a 9.2% jump in consumer health revenue, courtesy higher demand for its over-the-counter products such as Tylenol, Motrin, and Listerine.
Pharmaceutical sales rose by 8.7%. Adjusted EPS increased 9.5% to $2.30. The company enjoys an enviable record of beating earnings per share (EPS) estimates for 30 consecutive quarters.
Decline in medical device revenue fell 8.2%, as medical facilities chose to defer non-urgent surgical procedures due to the pandemic.
The stock is priced at a relatively attractive level with a P/E ratio of 14.58 and a good dividend yield. J&J has increased its dividend for 57 consecutive years.
The company approved a 6.3% increase of its quarterly cash payout to $1.01 per share, marking the 58th year of consecutive dividend payment, and a solid yield of 2.8%.
With over 260 subsidiary companies, J&J has a pretty solid and diversified revenue base, which allows it to be liberal with its dividend yields and growth.
Walmart is benefitting from its thriving groceries and household essentials business
Walmart Inc [NYSE: WMT] is an American multinational retail corporation that engages in retail and wholesale business.
The Bentonville, Arkansas-based company operates a chain of hypermarkets, discount department stores, and grocery stores as well as Sam’s Club retail warehouses.
The Company operates through three segments: Walmart U.S., Walmart International, and Sam’s Club. Walmart operates more than 11,000 stores and clubs in over 27 countries.
The S&P 500 index has fallen 15% from its February record high, while Walmart’s [NYSE: WMT] stock has jumped more than 10% in the same period.
At a time when the coronavirus outbreak has forced many retailers of nonessential goods to temporarily down their shutters, Walmart is thriving thanks to its grocery and household offerings.
Buoyed by the resiliency of its business as demands for its groceries and household essentials surge with consumers indulging in stockpiling during the coronavirus outbreak, the company recently even announced the creation of 150,000 new jobs.
Tepid performance by toys and video games hurt Walmart’s fourth-quarter earnings slightly, but it was more than compensated by the strength in groceries, which is important as food makes up 56% of revenue at Walmart’s U.S. stores.
Add to that the growth in the company’s e-commerce platform, and with more customers shopping for groceries online than ever before, online grocery shopping at Walmart has simply doubled during the pandemic.
And with the rollout of the Walmart Grocery app, which combines grocery and general merchandise app, Walmart is expected to reap more dividends. And Amazon’s decision to stop taking grocery customers has further played into Walmart’s strength.
Online grocery shopping has taken off in a big way during the COVID-19 pandemic. However, it was growing from strength to strength even before the virus crisis hit.
eMarketer reports that groceries are the fastest-growing e-commerce product category in the U.S., with sales expected to climb $38 billion by 2023 from $20 billion last year.
It is gaining further momentum with the advent of the coronavirus contagion, with more and more customers preferring the online option to avoid infection risk.
The frenzy may not be the same post the pandemic but in all probability, it is expected that many shoppers who have switched on to online shopping will continue to stick to it lured by the convenience it offers. This certainly bodes well for Walmart which is laying special emphasis on e-commerce expansion.
And to top it all, Walmart is a good dividend payer with a solid record of increasing dividend payment since 1974. The retail giant paid out about 41% of its free cash flow as dividends over the past year. With the current bear market, it is always wise to invest in dividend stocks to ensure regular income.
The virus may have brought economic activity to a virtual standstill, but things look pretty rosy at Walmart, which makes it a very smart buy right now.
Colgate-Palmolive showing strong resilience to economic slowdown
Colgate-Palmolive Company [NYSE: CL] is an American multinational consumer products company. The company operates in two product segments: Oral, Personal, Home Care, and Pet Nutrition.
Colgate operates in more than 80 countries, and its products are marketed in more than 200 countries and territories.
The New York-based company manufactures and markets its products under trusted brands, such as Colgate, Palmolive, Tom’s of Maine, Sorriso, Ajax, Axion, Speed Stick, Softsoap, Irish Spring, Protex, Fabuloso, Soupline, and Suavitel, as well as Hill’s Science Diet and Hill’s Prescription Diet.
Colgate-Palmolive [NYSE: CL] makes consumer products like soaps, toothpaste, and mouthwash which are enjoying a surge in demand during the coronavirus pandemic.
As the world reels from the impact of COVID-19, defensive stocks such as Colgate-Palmolive are being scooped up by investors. The reasons for it are manifold: the company owns a long list of well-established brands that are firmly entrenched in consumers’ daily lives.
These stocks as such demonstrate a higher degree of resiliency to economic uncertainty or downturns. Another heartening factor for investors spooked by the chaos in the market is the fact that Colgate-Palmolive offers a 2.55% dividend yield, and has been consistent in its dividend payments for more than 120 years.
There’s little doubt that companies operating on a global scale will feel some heat because of COVID-19; it’s just not very clear at this juncture how big the impact is going to be.
Consumer stocks are less susceptible to economic shocks because of their high inelasticity of demand. This is reflected, in fact, in the stock price of Colgate which has gained 26% off a low of $58.40 on March 23.
The company for the fiscal year 2019 generated $16b in revenues and statutory EPS of $2.75. Analysts are forecasting Colgate-Palmolive to grow faster in the coming years in contrast to the past, with revenues expected to grow 4.3%.
To round it off, Colgate-Palmolive remains an attractive investment option owing to its reliable dividend payments, resilience to economic slowdown, well-established brands, large scale operations, and competitive advantages.
Close involvement with Canopy and focus on the US market augurs well for Constellation Brands
Constellation Brands, Inc. [NYSE: STZ], is an international producer and marketer of beer, wine, and spirits with operations in the United States, Canada, Mexico, New Zealand, and Italy.
The company with more than 100 brands in its portfolio is the largest beer import company in the US, measured by sales. Based in Victor, New York, the company’s brand portfolio includes Robert Mondavi, Ruffino, Corona, Negra Modelo, Svedka Vodka, Casa Noble Tequila, and High West Whiskey among others.
Investors in Constellation Brands, Inc. [NYSE: STZ], have reaped immense rewards with the stock surging an unbelievable 1000% over the past decade. What it means is that investors have earned more than 10 times of their initial investment within a decade.
The reason for this incredible growth is not hard to decipher. Constellation has some of the most powerhouse beer brands such as Corona and Modelo in its kitty, which puts it in an incredible position to capture a large chunk of the nearly $120 billion U.S. beer market.
Another important factor going in the company’s favor is its decision to dispose of its lower-end wine and spirit brands and to concentrate more on its premium brands.
The alcoholic beverage behemoth recently netted $2 billion through its recent deals with E. & J. Gallo Winery and Heaven Hill Brands.
The cash apart from helping it with debts payment and balance sheet fortification also puts it in a better position to better reposition its remaining wine and spirits portfolio for better growth.
The company’s sales have not been as gravely impacted as its competitors for the simple reason that the sales of its beer brands are almost entirely focused on the U.S. market. Its limited exposure to international markets such as China means its sales isn’t getting hurt nearly as much as its competitors.
The reality is that Constellation Brands reported Q3 2020 earnings in early January that surpassed analyst expectations. Additionally, the beer titan raised its guidance for the entire fiscal year to at least $9.45 a share, 45 cents higher than its previous guidance, and close to $1 more than consensus estimate of $8.51 a share.
Also, the company expects its overall alcoholic beverage portfolio to generate approximately $2.2 billion in operating cash flow and $1.4 billion in free cash flow in fiscal 2020. Constellation has expressed its commitment to pass much of the cash to shareholders through increased dividend yield (current yield is 1.6%) and share buyback programs.
Also, experts believe Constellation’s close involvement with marijuana powerhouse Canopy is a good thing. It is understandable as Canopy is the largest publicly traded cannabis company and the one most likely to gain from boom in the cannabis industry, which is expected to generate over $200 billion in annual sales in a decade or so. Constellation bought Canopy Growth [NYSE: CGC] 40% stake for $4 billion.
CGC stock has little to show currently by way of appreciation despite reporting better-than-expected Q2 2020 earnings. The coronavirus-led correction hasn’t helped, nor has the news of excess production. Despite these factors, Constellation’s leadership team remains bullish on their investment in Canopy.
Canopy Growth recently appointed Constellation’s CFO, David Klein, as chairman of its board of directors. Experts believe Klein taking the reins is an excellent move, for he has the ability and the expertise to turn things around which bodes well for Constellation Brands.
Constellation Brands’ stock isn’t cheap by traditional valuation metrics. However, Constellation’s robust cash flow generation, recent fall in stock’s price, (down almost 9% year to date), consumer staples-focused business model, aggressive expansion in the highly lucrative US beer market, and tremendous upside potential owing to Canopy’s continuing maturation process makes it an excellent time to buy STZ stock.
Costco continues to grow at a steady pace
Costco Wholesale Corporation, [NASDAQ: COST] doing business as Costco, is an American multinational corporation that operates a chain of wholesale membership warehouses in multiple countries including the United States and Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Taiwan, South Korea, Australia, and Spain.
The Company offers merchandise in various categories, which include packaged foods, groceries, candy, alcoholic, and nonalcoholic beverages, meat, toys, bakery, sporting goods, jewelry, small appliances, pharmacy, health and beauty aids, and cleaning supplies among other goods.
The Issaquah, Washington-based company operates more than 780 warehouses across the globe.
Costco, along with Walmart Inc., has been one of the rare success stories in times of chaos unleashed by the Covid-19 pandemic.
The warehouse club remains open, and while it has taken adequate measures to keep customers and employees safe, its sales continues to soar.
It has been one the primary beneficiaries of the social distancing and stay-at-home orders put in place because of the pandemic, as panicky buyers indulge in bulk buying of everyday essentials.
The retailer’s comparable U.S. sales, excluding fuel, rose 12.1%, amounting to $1.5 billion. Sales, however, is only half the story for Costco.
It derives around two-thirds of its profits selling memberships. However, rising sales mean that the customers are happy and the retailer is doing well — a fact corroborated by its stellar second-quarter performance.
Earnings came in at $931 million or $2.10 per share in comparison to $889 million or $2.01 per share it generated in the same time period the year before. Net sales jumped to $38.26 billion from $34.63, a 10.5% increase from the same period last year.
Comparable sales rose 8.9% and digital sales increased by 28.4%, compared to the same quarter in 2019. Total cardholders jumped about 1 million from the 99.9 million the company reported at the end of the first quarter. Executive memberships also witnessed an increase of 27,000 since Q1 end.
Costco may not be as glamorous as some other high-end stocks, but then it is good at what it does. Its members want low prices and the warehouse club stands up to their expectations.
The company is not a sprinter but it keeps marching ahead at a steady pace, adding members and opening warehouses. Another standout for Costco has been its dividend payments.
The retailer went against the tide, recently raising its quarterly dividend from $0.65 a share to $0.70, at a time when several major companies have decided to withhold dividend payments to shore up liquidity. It has also paid special dividends in 2012, 2015, and 2017, of $7 a share, $5 a share, and $7 a share, respectively.
Costco stocks offer a very valuable thing during the pandemic— safety. It offers consistent growth and dividend, and more than that it has proved its resiliency by increasing its sales and memberships when majority of economic activities have gone into a deep-freeze, which significantly strengthens its case to be included in your portfolio.
Procter & Gamble a good buy during the pandemic
The Procter & Gamble Company (P&G) [NYSE: PG] is an American multinational consumer goods corporation. The world’s largest maker of consumer-packaged goods, it divides its business into five global segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine, & Family Care.
The Cincinnati, Ohio-based company sells its products in approximately 180 countries and boasts of dozens of well-known brands, such as Olay, Old Spice, Tide, Safeguard, Head & Shoulders, Crest, Gillette, Pantene, Mr. Clean, Bounty, Pampers, Pepto Bismol, and Puffs among others.
Procter & Gamble Co [NYSE: PG] recently raised its quarterly dividend by 6% from 74.59 cents to 79.07 cents, marking the company’s 64th consecutive year of annual dividend raises and serving as a good reminder that its operating model is strong enough to wither economic turbulence.
This should not come as a surprise as consumer staple companies like P&G have been witnessing a surge in demand of their products owing to the coronavirus outbreak. Consumers are hoarding household products and other essentials during the pandemic.
The market is witnessing intense volatility which automatically augments the demand for defensive stocks, i.e., stocks that provide consistent earnings and dividends regardless of the overall volatility of the stock market, because of constant demand for their products.
P&G dominates consumer staples categories such as diapers and home-cleaning supplies. Its fiscal third-quarter U.S. sales jumped 10% as consumers stocked up on staples like Charmin toilet paper and Bounty paper towels. The Bounty brand is the market leader in its category accounting for 40% of all paper towel sales in the U.S. last year.
P&G’s fabric and home-care segment, which includes brands like Tide and Ariel, surged 10% as people are doing more laundry at home. Its baby, feminine, and family care business, which includes Pampers, saw organic sales rise 7%, even though demand for its products suffered a decline in its second biggest market China.
P&G’s grooming business, which includes Gillette and Venus, witnessed a decline in sales as people tend to shave less frequently while staying at home.
Despite major disruptions in its global manufacturing and supply chains and wildly fluctuating demand for its certain products, P&G reported fiscal third-quarter net income of $2.92 billion, or $1.12 per share, up from $2.75 billion, or $1.04 per share, in comparison to the prior year. Net sales rose 5% to $17.21 billion. Organic revenue jumped 6% during the quarter.
The consumer goods giant has also spent $7.4 billion on buying back its own shares in fiscal 2020. The company has maintained its earnings and sales forecast for the fiscal year, but has warned of fall in revenue owing to the impact of foreign exchange. There’s no denying the strength of P&G’s finances, either.
The company had $15.4 billion in cash and cash equivalents on its balance sheet at the end of the quarter. Majority of analysts have rated Procter & Gamble stock as a ‘buy’ with a target price of $129.05, an upswing of 10%, from the stock’s current price.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.