Five Consumer Staples Stocks to Buy Amid High Inflation, Risk of Recession

Paul Dykewicz

Five consumer staples stocks to buy amid high inflation, risk of recession and Russia’s continued invasion of Ukraine offer ways to protect from financial fallout.

The five consumer staples stocks to buy provide products and services people need to use frequently as essential items. Food, clothing and shelter are basic human needs and companies that provide them have customers who may scale back on such purchases but not eliminate them.

In contrast, the consumer discretionary sector manufactures and markets luxury goods that consumers may want but could put off buying when economic uncertainties warrant caution. Consumer staples, of which food and beverage are a subset, usually outperform stock indexes during recessions and bear markets. 

Pension Fund Chairman Offers Analysis of Consumer Staples Stocks 

Consumer staples companies tend to have reliable cash flows and can increase prices as costs rise. Consumers will reduce spending in other areas when money becomes tight, said Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter.

For a broader portfolio that focuses on consumer staples generally, there are several good exchange-traded funds (ETFs) that deliver both solid returns and attractive yields. The most volatile of the group, and the one with the highest recent returns, is iShares U.S. Consumer Staples (IYK). Bargain hunters may like the fund’s recent pullback to offer a reduced buy price.

Chart courtesy of www.stockcharts.com

The fund holds 52 stocks and 65% of the fund is in the 10 largest holdings. Top positions include Procter & Gamble (NYSE: PG), Coca-Cola (NYSE: KO), PepsiCo. (NASDAQ: PEP). The fund also offers a Securities and Exchange Commission (SEC) yield of 1.42%.

Bob Carlson, head of the Retirement Watch newsletter, meets with Paul Dykewicz.

Walmart Ranks as One of the Five Consumer Staples Stocks to Buy

Jim Woods recommends consumer staples stocks in his Intelligence Report newsletter. One of them is Walmart (NYSE: WMT), of Bentonville, Arkansas, the largest U.S. retailer. The stock is a core holding in the Income Multipliers portfolio of his Intelligence Report newsletter.

Walmart reported excess inventory earlier in the year that led to lower-than-expected earnings, but the country’s largest and one of its most important retailers is rebounding, Woods wrote to his subscribers in his latest newsletter. The company reported that it has made significant progress on reducing discretionary inventory and focusing more on “necessity” spending, such as food, toiletries, etc., Woods continued.

Chart courtesy of www.stockcharts.com

“Doing so helped ameliorate otherwise worse results,” Woods wrote. “So, while in the aggregate the latest retail earnings were better than feared, we still can’t rule out that the longer inflation stays in place, and as jobless claims slowly rise, consumer spending won’t be further pressured.”

Paul Dykewicz meets with stock picker Jim Woods, who heads the Intelligence Report newsletter, as well as co-leads Fast Money Alert.

Procter & Gamble Picked as One of the Five Consumer Staples Stocks to Buy

Another Intelligence Report Income Multipliers portfolio position is Procter & Gamble, a Cincinnati, Ohio-based diversified consumer product company. Procter & Gamble offers a strong cash flow that allows it to provide a dividend yield of 2.4%.

In addition, Procter & Gamble has a rising dividend policy. In fact, the company has raised its dividend annually for the past 66 years. 

Potential risks to the company include inflation weighing on its profit margins, weakened sales from emerging markets in China and the effects of a strong U.S. dollar, said Michelle Connell, who heads Dallas-based Portia Capital Management.

Another risk is that consumers may use private label and generic products more than those of Procter & Gamble, Connell continued. Even though the stock is down so far this year, it has a potential upside of 19% within the next 12 months, she added.

Chart courtesy of www.stockcharts.com

Hershey Sweetens Five Consumer Staples Stocks to Buy

The Hershey Company (NYSE: HSY), of Hershey, Pennsylvania, is a Buy recommendation from BofA Global Research, due partly to its resilience in times of economic distress when people crave sweets as comfort food.

“I’m sweet on the company literally known for its ‘Kisses,’ and that is The Hershey Company,” said Jim Woods, who heads the Intelligence Report newsletter and directs High Velocity Options and Bullseye Stock Trader. He has recommended Hershey in the past in High Velocity Options and may do so again in his fast-paced trading service when the timing is right.

Woods explained that as the leading U.S. confectionery manufacturer, Hershey controls around 46% of the domestic chocolate space with brands such as Hershey bars, Reese’s and KitKat.

Chart courtesy of www.stockcharts.com

“Last quarter, HSY saw strong earnings per share (EPS) growth of 22% year over year, and I expect the company to deliver an even tastier result when they report earnings again in late October,” Woods said. “The reason being is that confection sales are up of late, and I think it’s because many consumers are taking refuge in the small pleasures in life where they can, especially considering the dual pinch of rising inflation and soaring gas prices.”

PepsiCo Is Another of the Five Consumer Staples Stocks to Buy

PepsiCo, a Purchase, New York-based global snack and beverage company, is the third of five consumer staples stocks to buy. Its key divisions include Frito-Lay North America (FLNA), Quaker Foods NA, North America Beverages (NAB), Latin America, Europe Sub-Saharan Africa (ESSA) and Asia, Middle East and North Africa (AMENA).

The company also operates in the United Kingdom, Mexico, India and China. Brands include Pepsi Cola, Mountain Dew, Gatorade, Tropicana, Frito-Lay, Quaker and others. BofA has a Buy rating and a $190 price target on the stock. BofA Global Research wrote a research note that its valuation reflects PepsiCo’s “balanced momentum, margin support and brand investments” are capable of delivering the high end of its long-term outlook.

Ramon Laguarta, upon taking over as PepsiCo’s chief executive officer in 2018, pivoted the company toward a growth-oriented path, BofA wrote. Reinvestment in the business and an appetite for risk remain at the core of the company’s cornerstone philosophies of this strategy, shown in PEP’s ramping digitization efforts, new category expansion and supply chain investments to fuel a stronger innovation engine, BofA added.

Chart courtesy of www.stockcharts.com

Coca-Cola Climbs into Five Consumer Staples Stocks to Buy

BofA Global Research placed a Buy rating on Coca-Cola with a $70 price objective, reflecting a target price-to-earnings (P/E) multiple of 26x the investment firm’s fiscal year 2023 earnings per share (EPS) estimate. This valuation is a premium to non-alcoholic beverage peers (22.9x), justified by BofA’s view that Coca-Cola should weather current macro headwinds better than its peers, given its size and pricing model.

Atlanta-based Coca-Cola also is recommended by Mark Skousen, PhD, who added it as a favorite choice in his Forecasts & Strategies investment newsletter. Skousen placed Coca-Cola in his newsletter’s dividend-oriented Flying Five portfolio and has watched it turn a profit this year even though the market overall has dropped.

Chart courtesy of www.stockcharts.com

Coca-Cola Climbs into Skousen’s Flying Five Portfolio

Each August issue, Skousen searches for the five highest-yielding, lowest-priced stocks in the Dow Jones Industrial Average. Coca-Cola is one of four stocks that recently retained a place in that portfolio, featuring good dividend-paying, reasonably priced stocks whose shares look ripe to rise.

Mark Skousen, a descendant of Benjamin Franklin, meets with Paul Dykewicz.

Skousen also teams up with Jim Woods for their Fast Money Alert trading service that recently recommended an energy beverage stock. Both seasoned investment prognosticators scan the beverage industry for stocks that appear positioned to outperform the market in the current conditions of high inflation, supply chain challenges and Fed rate hikes aimed at slowing economic growth.

Connell is another advocate of Coca-Cola, a company that has boosted its dividend payout for the past 60 years. It currently offers a dividend yield of 2.7%. 

Warren Buffett, one of the world’s best investors, must like the stock and dividend, since it ranks as his third-biggest holding, trailing only Apple (NASDAQ: AAPL) and Bank of America (NYSE: BAC), Connell said. The stock is up by double-digit percentages this year and has the financial fundamentals to rise higher, she added. 

Michelle Connell leads Dallas-based Portia Capital Management.

U.S. COVID Deaths Near 1.05 Million

COVID-19 cases and deaths can affect supply and demand for products such consumer staples such as food and beverages, especially with the global sourcing of ingredients. It can pay off for investors to track trends in COVID-19 closely.

U.S. COVID-19 deaths rose for the sixth consecutive week by more than 3,000, jumping to 1,048,186, as of Sept. 6, according to Johns Hopkins University. Cases in the United States climbed to 94,880,701. America still faces a sad situation as the nation with the largest number of COVID-19 deaths and cases.

Worldwide COVID-19 deaths in the last week only rose 14,977, compared to more than 33,000 the previous week, to total 6,505,731, as of Sept. 6, according to Johns Hopkins. Global COVID-19 cases climbed nearly 4 million in the past week to reach 606,246,956 on the same date.

Roughly 79.2% of the U.S. population, or 262,908,216, have received at least one dose of a COVID-19 vaccine, as of Aug. 31, the CDC reported. Fully vaccinated people total 224,113,439, or 67.5%, of the U.S. population, according to the CDC. The United States also has given at least one COVID-19 booster vaccine to 108.8 million people, up 300,000 for the second consecutive week.

The five consumer staples stocks to buy feature investments that offer products and services that should sustain resilient demand despite inflation of 8.5%, based on the latest report from the Consumer Price Index. With further risk of a recession after two straight 0.75% rate hikes by the Fed in June and July, as well as possibly another in September as Russia continues attacking Ukraine, the five consumer staples stocks offer a potential refuge for risk-averse investors.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many othersCall 202-677-4457 for multiple-book pricing.

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