Stocks represent ownership in a company that entitles you to receive the earnings of the business over time. However, a company like Proctor & Gamble (PG) or Coca-Cola (KO) does not typically experience a drop in sales when the economy performs poorly (or when it’s booming). If the economy goes into recession and consumer confidence declines, restaurant sales are going to suffer because people choose to eat in instead of dining out. If people see their income drop, that means they’re probably going to cut out travel and hotels, delay the purchase of big spending items (e.g., cars, electronics), luxury shopping, and so on. The companies that provide these types of goods and services will change over time. If a company’s earnings are reliable, they don’t rely on interest rate cuts to help offset a loss in income.
- Consumer staples are a good way to own cash flows that correlate well with this level of spending in the real economy.
- We can increase our reward relative to our risk by balancing sector weights in a more efficient way.
- Key for the sector in 2024 may be whether sales volumes improve, with consumers coming back to more brand-name items.
- She hails from New York City, graduating summa cum laude from Queens College with a BA in elementary education and mathematics, as well as a New York State teaching certificate.
- This is compounded by many consumer staples companies facing higher freight and logistics costs as well.
(The company’s LTM EPS of $14.18 is more than $6 higher than any other stock on this list.) It’s not surprising, then, that COST stock hit an all-time high in early December. For the quarter ending September 3, 2023, Costco reported a 9.4% increase in sales to $77.43 billion. Both metrics are relative to the year-ago quarter, which was one week shorter.
Neighbourly Pharmacy Inc. to Report Q3, 2024 Results on Feb 13, 2024
Unilever stands out for its poor environmental record, though it has recently announced plans to drastically reduce its footprint before the end of the decade. Since being spun off, Philip Morris has grown its market cap to be higher than Altria’s, making it one of the biggest sin stocks in the world. The company started instaforex review as a condensed milk company, and milk chocolate was one of its first products. Today, the firm has expanded to produce a gigantic range of different foods and beverages. Additionally, sector ETFs offer convenient ways to gain low risk and diversified exposure to a broad group of companies in particular sectors.
Drawdowns for Historical Market Stress Periods
Additionally, as generative AI makes headwinds across industries, its impact on consumers’ purchasing behaviors is being felt too. We look at the ways in which this technology is being used and adopted by consumers within different demographic cohorts. Vanguard Consumer Staples ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum, among other factors.
Vanguard, for example, offers VDC, a consumer staples ETF, and a Consumer Staples Index mutual fund. Invesco has PBJ, its dynamic food & beverage ETF, along with a more general S&P SmallCap Consumer Staples ETF. The consumer staples sector has outperformed all but one sector since 1962. According to the S&P Dow Jones Indices, for most of the 10 years ending April 26, 2021, the consumer staples sector returned 8.20% annually. ETFs offer a diversified exposure and thus minimize single stock risk but it is still important to delve into a fund’s holdings before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
Among other achievements, the company pioneered vertical integration by buying out its early bottlers, minting a number of millionaires in the process. A multinational, member-only big box chain, Costco is the fifth largest retailer in the world, according to the National Retail Foundation. The company operates 800 stores worldwide, though stores exist in fewer than 20 countries and almost 70% of its stores are located in the U.S.
Consumer staple companies are less likely to be affected by economic downturns than companies that produce nonessential products. As a result, these companies may provide more stable and reliable earnings even during challenging economic times. Consumer staple stocks create a “defensive position” in your stock portfolio, which helps to stabilize your entire portfolio during market volatility. When many investors first begin building an investment portfolio, they inadvertently veer toward the consumer staples sector. Consumer staples are companies that produce and sell essential products that people use daily, regardless of economic conditions.
Certain Zacks Rank stocks for which no month-end price was available, pricing information was not collected, or for certain other reasons have been excluded from these return calculations. Shares of consumer staples companies will become less attractive when the yields of some risk-free assets have started rising. However, when compared with other rate sensitive sectors such as utilities and real estate, consumer staples sector is still more expensive relative to its history, the UBS analysts said, in a Wednesday note. On the positive side, the business rationalizations position FLO for higher margins in its food service segment going forward.
The company just absorbed $137 million in legal costs related to a California distributor-related class-action lawsuit. FLO is also in the process of exiting lower-margin businesses, which has negatively impacted sales. KDP’s dividend yields 2.6% and the company has increased its shareholder payout for three years running. The company is investing heavily in innovation, advertising and brand-building—a strategy that’s starting to bear fruit.
Individual security selection also assumes that you can do better than a representative index. Most traders and investors won’t be able to do this over time and active management is a more hands-on type of trading or investing style. Even if you buy an ETF, that will move around quite a bit given the nature of stocks. That volatility will be enhanced by buying a smaller selection of individual stocks.
However, spending on goods produced and sold by the consumer staples sector tends to be far less cyclical due to the lessened price elasticity of demand. Price elasticity is an economic concept that describes the change in consumer quantity demand as prices change. The demand for consumer staples goods remains fairly constant regardless of the state of the economy or the cost of the product. That’s why the upcoming third-quarter earnings season is important for stocks in the consumer staples sector.
Also, because these stocks tend to perform in a way counter to the consumer discretionary sector in market recessions, they can help bring balance to a portfolio. In addition, consumer staples companies often have established brand names and loyal customer bases, which can provide a degree of protection against competition. Security can make them more attractive to investors looking for companies with long-term growth potential and stability. https://broker-review.org/ Consumer staples stocks are well suited for investors with low-risk tolerances. Whether you’re approaching retirement or simply want more stability during volatile markets, consumer staples could anchor your portfolio and provide decent returns while other sectors are suffering. Additionally, the consumer staples sector has historically experienced lower price volatility compared to other sectors, which are more correlated to business cycles.
S&P Select Industry Indices Consultation on Membership Classification – Results
The food industry is arguably Canada’s strongest among consumer staples. These stocks have traditionally included legacy grocery and discount stores. But they can also include startups specializing in vegan and plant-based foods. Many of Canada’s top consumer staples stocks are grocery and discount stores, like Alimentation Couche-Tard, Dollarama, and Loblaws. While Canada doesn’t have mega-cap consumer staples stocks on par with those found in the U.S. (like Walmart and Procter & Gamble), there are plenty of good opportunities on Canada’s home-turf exchanges.