Investors could be in for a bumpy ride this October. According to LPL Financial, since 1950 the S&P 500 has experienced more 1% or larger swings in October than any other month.
“We believe high October volatility is more than just a coincidence. We believe it is a critical period for many investors and companies that manage performance to calendar year-end,” Goldman Sachs equity derivatives strategist John Marshall wrote in a note to clients.
With this in mind, we wanted to find the most compelling investments given possible volatility next month. Using the TipRanks Stock Screener, we filtered our search results by sector specifically looking for consumer staples stocks. These stocks often hold up well during times of extreme market volatility as people still need to buy the essentials regardless of the economic landscape.
Here are the 3 consumer staples stocks to buy for October.
Post Holdings Inc.
Post Holdings (POST- Get Report) is the third-largest cereal maker in the U.S. with its brands including Honey Bunches of Oats, Fruity Pebbles and Bran Flakes. While shares have dipped 3% in the last five days, POST has been steadily gaining traction as shares are up 18% year-to-date.
Analysts point to its active nutrition spinoff, which was originally announced last November, as reinforcing its strong long-term growth narrative. On September 20, POST filed the IPO registration for the nutrition segment of its business. The spinoff, which will be called “BellRing Brands Inc.”, includes its Premier Protein, Dymatize, PowerBar, Supreme Protein and Joint Juice brands.
“We think it will be well received and is quite a value creator in that Post today trades at 10.2x EBITDA but Premier Nutrition will likely be in the 18- 22x range. At the midpoint of that value range, Premier Nutrition is likely a 4.7 billion enterprise value. Given that we think POST’s EBITDA multiple will be unchanged after an IPO of Premier Nutrition, the IPO should create over $2 billion of value for Post shareholders and that is still ahead of us,” commented Pivotal Research’s Timothy Ramey.
This prompted the four-star analyst to reiterate his Buy rating and $140 price target on August 2. His price target is the highest out of all the analysts that have assigned a rating to POST as well as implies that share prices could surge 33% over the next twelve months.
The rest of the Street takes a similar approach when it comes to the cereal company. With 3 Buy ratings and no Holds or Sells received in the last three months, POST has a ‘Strong Buy’ analyst consensus. Its average price target of $130 indicates 23% upside potential.
Based on its efforts to expand its product offerings, analysts tell investors that MDLZ is poised to outperform, with shares already up 36% year-to-date.
The company has placed a significant focus on making a name for itself as more than just a junk food maker. Back in June, MDLZ announced that it is set to acquire Perfect Snacks as part of this healthy food initiative. Perfect Snacks makes protein bars and bites, nut butters and healthy children's snacks. This acquisition is on top of the minority stake it purchased in both paleo food company Hu Products and prebiotic functional food company Uplift Food earlier in the year.
In the last year, the company also cut the saturated fat and sodium across its entire product portfolio. Not to mention MDLZ wants to make all of its all packaging recyclable and increase its portion control products to 20% of global net revenue by 2025.
All of this played into Morgan Stanley analyst Dara Mohsenian’s conclusion that MDLZ shares are still undervalued even with its year-to-date growth. As a result, the four-star analyst upgraded the stock from a Hold to a Buy and set a $62 price target on August 8. According to his estimates, share prices could rise 14% over the next twelve months.
In general, Wall Street is on the same page. MDLZ boasts a ‘Strong Buy’ analyst consensus and a $60 average price target, suggesting 11% upside potential.
Constellation Brands Inc.
The force behind Corona and Modelo beers has taken heat from investors recently. The negative sentiment comes as a result of its 36% stake in Aurora Cannabis (ACB), which reported disappointing Q1 fiscal 2020 results on August 15. That being said, some analysts are still picking Constellation (STZ- Get Report) as they see more gains on top of its 28% year-to-date growth in store.
The beer and wine maker’s strength lies in its core brands. Corona Extra is the highest-selling imported beer and ranks in the top six overall best-selling beers in the U.S. Its Modelo beer is the second-largest and fastest-growing major beer brand in the U.S.
Ahead of its October 3 Q2 earnings release, MKM Partners analyst William Kirk is picking STZ based on the strength of its Modelo products. “The unrelenting strength, and resulting cash generation, of Modelo affords Constellation the flexibility to invest in innovation, adjacent industries and marketing. Most of its peers are facing the opposite: declining volumes and a P&L under fixed cost pressures forcing a tightening of the investment belt,” he explained.
He adds that STZ could get a boost as a result of channel pricing. The fact that spirits and wine are no longer priced at a consumer price index (CPI) discount to beer bodes well for the company. As a result, Kirk initiated coverage with a Buy and set a $263 price target on September 19. His price target demonstrates his confidence in STZ’s ability to climb 28% in the next twelve months.
RBC Capital’s Nik Modi echoes this sentiment. Based on its beer brands, the 4.5-star analyst reiterated his Buy rating and $250 price target on the same day.
All in all, the Street is cautiously optimistic about STZ. 10 Buy ratings vs 5 Holds received in the last three months add up to a ‘Moderate Buy’ analyst consensus. Its $230 average price target suggests 12% upside potential.