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In this article, we will take a look at the 10 best consumer staples stocks to buy now. You can skip our comprehensive analysis of the consumer staples industry and go directly to the 5 Best Consumer Staples Stocks to Buy Now.
The toilet paper shortages at the beginning of the COVID-19 pandemic drove a massive fear-induced shopping spree for consumer staples in early 2020. This drove the shares of consumer staples stocks to new but short-lived highs as a detailed look at consumer spending habits indicated that while some staples continued to sell like hot cakes, there were some others that decreased in demand. For example, financial research firm Fidelity has found that the sales of packaged food items increased in lockdown but skincare products experienced declines.
The highly consolidated nature of the consumer staples like beverages and household items is expected to drive the rise in demand for these commodities even as the coronavirus lockdowns become a distant memory. For example, The Procter & Gamble Company (NYSE: PG) has signaled that it is increasing the pricing on items it manufactures as supply chain issues because of the pandemic result in decreased production amid high demand. The Procter & Gamble Company last raised prices significantly more than a decade ago.
Even retailers have not been spared from the impact of the post pandemic economy. Costco Wholesale Corporation (NASDAQ: COST), one of the largest retailers in the world that operates on a membership basis, saw share prices fall as much as 17% earlier this year as investors expressed concern about the firm matching high sales numbers from 2020. However, in answer to these worries, Costco Wholesale Corporation has reported a 7% increase in membership numbers in the past twelve months, with renewal rates hovering at around 90%.
For others in the consumer staples industry, innovation has been the answer to the uncertainties surrounding the market. Tyson Foods, Inc. (NYSE: TSN), one of the biggest manufacturers of processed meat, has said it plans to launch plant-based meat products like hamburgers and sausages as the coronavirus vaccinations allow for a return to normal and result in an increase in the number of people dining out at restaurants or gathering together for parties. Tyson Foods, Inc. aims to compete on pricing with established alternative meat companies.
Growth Catalysts for Consumer Staples Stocks
There are several studies that contend that the spending habits developed by consumers in lockdown are likely to continue because of several reasons. One of these is the increase in work-from-home jobs. A study by the Stanford Institute for Economic Policy Research claims that almost 42% of workers who were employed in early March transitioned to fully working from home by the end of 2020. Even as they return to work this year, the time they spend at home is still expected to rise - 300% according to a survey by the Federal Reserve Bank of Atlanta.
The divide between different consumer staples drawn as a result of the pandemic might increase further this fiscal year and it is very important for investors to observe these trends carefully to bet on companies that stand to gain from this imbalance. The potential downside to ignoring the changing market dynamics can very well be observed by looking at the performance of hedge funds that stubbornly refused to adapt to the new financial world steadily developed by technological disruption over the past few years.
In fact, the entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context in mind, here is our list of 10 best consumer staples stocks to buy now.
Best Consumer Staples Stocks to Buy
10. Altria Group, Inc. (NYSE: MO)
Number of Hedge Fund Holders: 37
Altria Group, Inc. (NYSE: MO) is a Virginia-based firm that deals in tobacco, cigarettes and related products. It is placed tenth on our list of 10 best consumer staples stocks to buy now. The firm is most famous for being the owner of the Marlboro brand of cigarettes, as well as the Black & Mild cigar brand. Altria has stakes in the wine business too, and owns more than 14 wine brands. It has diversified business to include services in finance, transportation, real estate, and manufacturing industries over the years.
Altria Group, Inc. was given a Buy rating by Bank of America on April 20 despite reports that the US government was planning to further reduce nicotine levels in cigarettes. The bank said the company had a history of navigating regulatory concerns and the exposure Altria had with non-nicotine products would serve it in good stead moving ahead.
At the end of the fourth quarter of 2020, 37 hedge funds in the database of Insider Monkey held stakes worth $1.08 billion in the firm, down from 47 the preceding quarter worth $1.25 billion.
"We initiated a new position in Altria, which commands roughly 50% of the cigarette and smokeless tobacco market in the U.S. Both of these markets are duopolies that we believe have exhibited strong pricing power over time. While the shares trade at a low multiple of reported earnings, Altria also owns valuable stakes in other non-core businesses, including ~10% of AB InBev, 35% of Juul and 45% of Cronos. Excluding the values of these stakes and their respective earnings contribution, we were able to purchase shares of Altria for less than seven times our estimate of next year’s earnings. This compares to other consumer brands with less favorable earnings growth profiles that trade for three times Altria’s multiple. The company also has several promising reduced-risk products that may appeal to tobacco users, including On! and iQOS. We believe these products position the company well to help consumers slowly transition to a tobacco-free future. We expect management to return the vast majority of future earnings to shareholders given the company’s strong balance sheet, high free cash flow conversion and limited capital requirements.”
9. Mondelez International, Inc. (NASDAQ: MDLZ)
Number of Hedge Fund Holders: 50
Mondelez International, Inc. (NASDAQ: MDLZ) is a Illinois-based multinational firm that makes and sells packaged food products. The firm comes in at ninth place on our list of 10 best consumer staples stocks to buy now. Mondelez sells several snack food items and owns the Oreo, Tang, and Cadbury brands, among others. The company is aggressively expanding stakes in the packaged food sector with big acquisitions of Give & Go and Hu Master Holdings in the past two years.
Mondelez International, Inc. sells products in more than 160 countries. In late April, the company posted quarterly results, reporting a revenue of more than $7.4 billion, a close to 8% increase compared to the same period last year, beating market estimates by around $230 million.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Trian Partners is a leading shareholder in the firm with 12.2 million shares worth more than $715 million.
8. PepsiCo, Inc. (NASDAQ: PEP)
Number of Hedge Fund Holders: 56
PepsiCo, Inc. (NASDAQ: PEP) is a New York-based multinational food, snacks and beverage company. It was founded in 1898 and is placed eighth on our list of 10 best consumer staples stocks to buy now. Some of the products that the firm offers include dips, cheese-flavored snacks, corn, potato, and tortilla chips; cereals, rice, coffee, and juices among others. The famous brands it owns include Cheetos, Doritos, Pasta Roni, Aquafina, Mountain Dew, Pepsi, 7UP, and others.
PepsiCo, Inc. stock registered gains on April 21 after investment advisory UBS upgraded it to a Buy from Neutral after the New York firm posted strong quarterly earnings. UBS revised the price target on Pepsi to $165 from $145.
At the end of the fourth quarter of 2020, 56 hedge funds in the database of Insider Monkey held stakes in the company worth $4.2 billion, up from 52 in the preceding quarter worth $2.9 billion.
7. Energizer Holdings, Inc. (NYSE: ENR-PA)
Number of Hedge Fund Holders: 26
Energizer Holdings, Inc. (NYSE: ENR-PA) is a Missouri-based company that markets batteries and lighting products. It was founded in 1896 and is placed seventh on our list of 10 best consumer staples stocks to buy now. The firm owns the Energizer and Eveready brands which offer lithium, alkaline, carbon zinc, nickel metal hydride, zinc air, and silver oxide batteries. The lighting products it makes include headlights, lanterns, and other kinds of lights. It also sells automobile care products like fragrances and interior cleaners.
Energizer Holdings, Inc. shares jumped more than 5% in February this year after the firm posted strong quarterly results beating market estimates on net sales by almost 4%. The firm said at the time that it was raising the adjusted earnings per share outlook for the rest of the fiscal year on the back of the solid results.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm GAMCO Investors is a leading shareholder in the firm with 1.7 million shares worth more than $74 million.
6. Pilgrim's Pride Corporation (NASDAQ: PPC)
Number of Hedge Fund Holders: 17
Pilgrim's Pride Corporation (NASDAQ: PPC) is a Colorado-based food company that is one of the largest chicken meat producers in the United States. It was founded in 1946 and is ranked sixth on our list of 10 best consumer staples stocks to buy now. The firm has operations in the US, the United Kingdom, Mexico, Puerto Rico, Europe, and Asia. The firm sells meat-related products under brands such as the Pilgrim’s, Just BARE, Gold’n Pump, Gold Kist, County Pride Chicken, Pierce Chicken, Pilgrim’s Mexico, and others.
Pilgrim's Pride Corporation was listed as one of the stocks to watch out for by Bank of America in February after popular fast food chain McDonald’s announced it would start offering new chicken sandwiches, leading to an increase in demand for chicken meat from the Colorado firm.
At the end of the fourth quarter of 2020, 17 hedge funds in the database of Insider Monkey held stakes worth $804 million in the firm, down from 18 in the previous quarter worth $501 million.
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Disclosure: None. 10 Best Consumer Staples Stocks to Buy Now is originally published on Insider Monkey.