Five Consumer Staples Stocks to Consider as Recession Shields

Five consumer staples stocks to consider as recession protection feature proven brands that are leaders in their respective niches.

Four of the five consumer staples stocks to consider feature the food and beverage category, while the other features cleaning and personal care products. BofA Global Research rated beverage stocks as its favorite consumer staples sub-sector, but household, beauty and personal care companies came in right behind.

Peak U.S. dollar and interest rates would be favorable to multinational consumer staple stocks such as Atlanta’s Coca-Cola (NYSE: KO) and Cincinnati’s Procter & Gamble (NYSE: PG). Investors seeking quality may turn to Harrison, New York-based PepsiCo (NASDAQ: PEP) and Hershey, Pennsylvania’s Hershey (NYSE: HSY), while those wanting a consumer staples stock in the mid-cap and small-cap category can choose frozen potato provider Lamb Weston Holdings, Inc. (NYSE: LW), of Eagle, Idaho. 

Five Consumer Staples Stocks to Consider Show Inelastic Demand

Consumer staples food companies show demand for their products is “surprisingly inelastic,” according to BofA. The investment firm forecasts upside for gross margins, along with positive earnings revisions, as input inflation plateaus and the U.S. dollar weakens. 

In contrast to last quarter, BofA broadly expects earnings estimates for fiscal year 2023 to be in-line or move up due to the factors previously mentioned.

Coca-Cola is a recommended beverage stock of BofA, as well as Mark Skousen, who leads the Forecasts & Strategies investment newsletter. Coca-Cola is among the Flying Five stocks that Skousen recommends by choosing five Dow Jones Industrial Average stocks with the lowest price from a list of the 10 highest-yielding companies in that index. 

Mark Skousen, a scion of Ben Franklin and head of Fast Money Alert, greets Paul Dykewicz.

The total returns from Coca-Cola are up nearly 50% since Skousen recommended it on July 31, 2017.

Chart courtesy of www.stockcharts.com

Coca-Cola Leads Among Five Consumer Staples Stocks to Consider

BofA expects “solid organic sales growth” from Coca-Cola with price hikes sticking and volume demand holding up. The investment firm placed a $74 price objective on the stock, giving it a premium to non-alcoholic-beverage peers. 

“In our view, a premium multiple is warranted by balanced and resilient organic sales growth,” BofA wrote in a recent research note. An outperformance could occur with strong growth in developed and emerging markets, a weakening U.S. compared to other currencies and improved free cash flow conversion. Risks to meeting that price target include volatility in developed and emerging markets, earnings per share (EPS) headwinds if the U.S. dollar strengthens and consumer concerns about sugar and calories.

PepsiCo Joins Five Consumer Staples Stocks to Consider 

PepsiCo is another major beverage stock that also owns the Frito-Lay brand of snack foods. BoA put a $205 price target on PepsiCo., along with a buy recommendation.

“We expect PEP is set up for another quarter of strong organic sales growth, modeling 4Q22 organic sales growth of +8%,” BofA wrote.

PepsiCo received a premium to non-alcoholic-beverage peers that is “justified” based on the view that the stock is positioned to deliver against its long-term algorithm and return cash to shareholders via dividends and share repurchases, the investment firm wrote.

Pluses for PepsiCo include low-to-moderate foreign exchange headwinds, growth opportunities and improving volume/price/mix in soft drinks.

Risks to reaching the price target come from foreign exchange becoming a drag on results and Frito-Lay North America incurring a decline in volumes due to price hikes.

Chart courtesy of www.stockcharts.com

Five Consumer Staples Stocks to Consider Include Hershey

BofA also recommended The Hershey Co., setting a $270 price target. With some slack in capacity, Hershey is in a better position than recent years to service demand upside if it materializes, BofA wrote in a research note.

For fiscal year 2023 guidance, HSY provided perspective on sales, pricing and inflation, so BofA wrote that it did not expect much surprise one way or another about earnings. Hershey is executing on its pricing actions and has seen lower-than-expected elasticities across its portfolio as consumers continue to spend on sweet treats and snacking occasions in an inflationary environment, BofA wrote.

“In addition, HSY has been able to maintain share in its categories with the lowest private label exposure in its peer set,” BofA continued.

Potential outperformance could come from continued market share gains in a low private label exposure environment, faster moderation of inflation, low elasticity persisting and volume gains offsetting any pricing decelerations, BofA opined. Possible risks to reaching the price target include elevated inflation taking longer than expected to taper off, competitors grabbing market share from HSY and negative surprises on packaging, logistics or special ingredient costs that aren’t traditionally hedged by Hershey.

Chart courtesy of www.stockcharts.com

Five Consumer Staples Stocks to Consider: Procter & Gamble 

Procter & Gamble is recommended by Jim Woods, who concurrently leads the Intelligence Report investment newsletter and the Bullseye Stock Trader. The latter service recommends stocks and options, while Intelligence Report newsletter features stocks.

Paul Dykewicz meets with Jim Woods, head of Bullseye Stock Trader.

Woods recommends Procter & Gamble in the Income Multipliers Portfolio in his Intelligence Report investment newsletter.

BofA forecasts favorable tailwinds for Procter & Gamble with market share trends improving since the start of fiscal year 2023, and with inflation and currency headwinds moderating. Market expectations for organic sales have crept up recently to 5%, but overall the company has a favorable setup over the next few quarters, wrote BofA, which gave the stock a price target of $170.

Portia Capital Chief Also Recommends Procter & Gamble

Michelle Connell, chief executive officer of Dallas-based Portia Capital Management, also recommends Procter & Gamble. Even though inflation has caused many consumers to trade down with their consumer staple purchases and buy cheaper products, Procter & Gamble has not felt this pressure, Connell commented.

Michelle Connell leads Dallas-based Portia Capital Management.

For its most recent quarter, the company had revenue growth of 5% due to its ability to increase its sales prices, Connell said. For its core categories, the company increased prices 8-13%, she added. 

Consumers are less willing to compromise regarding PG’s product categories, Connell counseled. The stock has three tailwinds that should assist in returning growth to its bottom line in the form of earnings per share, she said.

Procter & Gamble is expected to continue to increase its U.S. market share for the categories of family care and fabric care, Connell continued. The economic reopening of China will be a huge lift for Procter & Gamble, as the world’s most populous nation accounts for 10% of the company’s revenues, Connell added.

Procter & Gamble Has a Share Price Upside of At Least 16%

The estimated upside for Procter & Gamble is more than 16%, Connell counseled. The stock also is offering a current dividend yield of 2.6%.

Risks to BofA’s price objective are a slowing in recent sales momentum, adverse competitive responses from private label brands in the coming months and a return to “risk-on” investing that would make Procter & Gamble’s defensive qualities less attractive.

Chart courtesy of www.stockcharts.com

Five Consumer Staples Stocks to Consider: Lamb Weston

Lamb Weston Holdings, Inc. (NYSE: LW), of Eagle, Idaho, supplies frozen potato, sweet potato, appetizer and vegetable products to restaurants and retailers worldwide. For more than 60 years, Lamb Weston has introduced inventive products that are distributed to more than 100 countries.

The company has manufacturing operations focused in the Pacific Northwest, primarily in arguably the world’s best potato-growing region, the Columbia River Basin. Lamb Weston employs more than 7,000 people worldwide in sales offices, manufacturing plants and corporate offices.

BofA Gave Lamb Weston Holdings a price objective of $115, a premium to the packaged food index. The investment firm wrote that the premium is warranted, since Lamb Weston is poised to approach pre-COVID levels with upside potential to improve demand trends and margin potential in fiscal year 2023 and 2024.

Chart courtesy of www.stockcharts.com

Potential Risks Could Weigh on Lamb Weston

Potential outperformance for Lamb Weston to surpass its $115 price target include demand rebounding faster than expected and category growth staying above 3% to allow tight industry supply to continue in the medium- to long-term. Tight industry supply allows for further price increases across both global and food service customers, BofA wrote.

Risks to reaching the $115 price target include higher-than-expected potato costs for 2022, struggling to push through additional pricing to cover inflation and restore margins, influx of new industry capacity and slowdown in on-premise activity if the consumer has less spending power.

Bryan Perry, the leader of the Cash Machine investment newsletter and the Breakout Options Alert trading service, recommended Lamb Weston call options in the latter service. The trade is almost up by 10% since the recommendation and the stock is up 11.78% so far this year.

Russia’s War Against Ukraine Intensifies

The five consumer staples stocks to consider are largely insulated from the fierce fighting in Bakhmut, Ukraine, where Russian forces are trying to gain control of a key highway and disrupt supplies. Russian airborne units have joined Wagner mercenary fighters in the battle for the city.

Russia’s troops are “leveling Bakhmut to the ground, killing everyone they can reach,” Pavlo Kyrylenko, a Ukrainian prosecutor and politician who also is the current Governor of Donetsk Oblast, wrote on Telegram. Russia claimed on Tuesday, Feb. 1 to have captured a village just to north of Bakhmut as it seeks to surround the city itself and seize control.

The U.S. State Department accused Russia of violating a key nuclear arms agreement by refusing to allow inspections of its nuclear facilities. The only agreement left to regulate the nuclear arsenals of the United States and Russia is the New START treaty, but inspections have been on hold since 2020 due to the COVID-19 pandemic. 

Russia is sustaining its onslaught of increased strikes that began in October, targeting Ukraine’s energy and civilian infrastructure.

COVID Deaths Rise, But President Biden Plans to End Crisis Status

Worldwide COVID-19 deaths jumped to 6,833,078 people, with total cases of 670,717,959, Johns Hopkins reported on Jan. 31. COVID-19 cases in the United States totaled 102,345,704, while deaths reached 1,108,6482 as of Jan. 31, according to Johns Hopkins University. Until recent reports that China had 248 million cases of COVID-19, America had ranked as the nation with the most coronavirus cases and deaths.

The U.S. Centers for Disease Control and Prevention reported that 268,927,705 people, or 81.0% the U.S. population, have received at least one dose of a COVID-19 vaccine, as of Jan. 26. People who have completed the primary COVID-19 doses totaled 229,619,755 of the U.S. population, or 69.2%, according to the CDC. The United States has given a bivalent COVID-19 booster to 48,571,899 people who are age 18 and up, equaling 18,8% as of Jan. 26. It marks a jump from 18.5% as of Jan. 18, from 18.2% on Jan. 11, 17.7% as of Jan. 4, 17.3% on Dec. 28, 16.8% the previous week, 16.3% the week before that one and 15.5% the preceding week.

The five consumer staples stocks to consider offer tempting investment opportunities whether one favors beverages, food or personal care products.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA 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. Special Holiday Offer: Paul 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 uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases.