In this piece, we will take a look at ten small cap consumer staples stocks billionaires are loading up on. To skip out on why consumer staples stocks might be relevant right now and their performance this year, head on over to the top 5 Small Cap Consumer Staples Stocks Billionaires Are Loading Up On.
As we’re about to exit the first half of 2023, a period of significant uncertainty in the stock market is nearly over. The main question on everyone’s mind last year was how high will the Federal Reserve raise interest rates in its fight against inflation. This fight saw the bank consecutively increase the rates by 75 basis points for a cumulative five percentage point increase since 2022. This aggressive approach had rattled investors so much last year that even the slightest hint of a raise from any member of the Fed would trigger drops in the stock market.
Then, 2023 started out with the worries of a potential default by the U.S. government. However, with that particular threat a thing of the past, the only thing that investors are worried about right now is a potential recession. A recession is typically defined as two consecutive quarters of an economic contraction, and due to the complications involved in gathering data, it is often over before we even know that it took place.
Looking at the stock markets, there are several categories of stocks that are generally expected to weather a recessionary storm. One such segment is the consumer defensive or the consumer staples segment. This segment consists of firms that make and sell everyday, general use products such as detergents, food, toothpaste, and soap. The logic behind is that as an economy slows down and incomes drop, while people will cut down discretionary spending such as air travel, but they still have to brush their teeth and take a shower.
While this makes intuitive sense, it’s also important to look at what the professionals think about consumer staples stocks during an economic downturn. Fortunately for us, there is no shortage of research that analyzes how well the consumer defensive industry performs on the stock market in a recession. One such report comes from Hargreaves Lansdown and it analyses the British FTSE Index. Hargreaves confirms the hypothesis that during a broad stock market downturn, consumer staples do indeed lose much less of their value compared to the broader market. For instance, its data shows that during the peak of the coronavirus’s hit to the stock market, the FTSE All Share Index dropped by 29.5% through March 18, 2020. However, during the same period, the consumer staples sector had dropped by less than half or by 13.24%. Talk about cold, hard data.
On the small cap consumer staples front, we have two indexes to help us understand how this segment is performing. One index is the S&P SmallCap 600 Consumer Staples index, which has returned 4.56% over the year and 4.7% year to date. Another collection of small cap consumer staples stocks is the Invesco S&P SmallCap Consumer Staples ETF which provides a comfortable way to invest in small cap consumer staples stocks.
Another set of data comes from S&P Global Market Intelligence. This data looks at the short interest in the consumer defensive stocks. Released in April, the report shows that by the end of March, the short interest percentage in consumer staple stocks stood at 3.4% – below the average percentage of 5.6% in 2022. This provides one of the strongest evidence of the market’s belief that a recession is due later this year since a higher short interest indicates that more investors expect the share prices of the target companies to drop. Additionally, the S&P also shows that not all consumer defensive stocks are equal. In fact, while the average consumer staple short interest was at 3.4% in March, for the drug companies, this actually jumped to a whopping 9.58%. At the same time, merchandise retailers and distillers have short interest percentages of 1.72% and 2.12%, respectively. Keep these sectors in mind as you go through our list of the top ten consumer staples stocks.
Another lucrative aspect of investing in the stock market, apart from potentially watching your money grow while others are losing theirs, is dividends. Well, a lot of consumer staples stocks also pay dividends, like the ones in our list of top dividend paying consumer staple stocks. Some of the top dividend paying stocks are household names such as Walmart Inc. (NYSE:WMT), The Procter & Gamble Company (NYSE:PG), and PepsiCo, Inc. (NASDAQ:PEP).
On a closing note, let’s take a look at what one of the largest consumer staples companies in the world, Walmart Inc. (NYSE:WMT) believes is in store for its industry this year. According to its management:
These will again be a headwind in Q2 and to a lesser extent in Q3. As we lap these charges, we expect meaningful improvement in ROI in the back half of this year. When you look beyond these unique items, our underlying operational ROI is steadily moving higher. At our Investor Day in April, I said that we want our ROI to go up every year and I still believe that will be the case this year. Let me briefly reference key segment highlights for Q1. For Walmart U.S. comp sales were strong, up 7.4% reflecting higher store traffic trends as well as strong growth and store fulfilled pickup and delivery. From a category perspective, comp sales were driven by strong growth in food and health and wellness, partially offset by a decline in general merchandise sales.
Unseasonably cooler spring weather negatively impacted sales in certain seasonal hardline categories including lawn and garden. Gross margins decreased 41 basis points primarily due to ongoing pressure from category mix shifts. As mentioned previously, supply chain costs and transportation were lower as we lapped last year’s elevated levels. Inflation remained high, up low double-digits in food categories. It’s important to remember that while year-over-year inflation started to moderate as the quarter progressed, this is largely due to lapping higher levels from last year. On a two-year stack basis, food inflation remains over 20% and continues to pressure discretionary wallets. Share gains and grocery continued, including from higher income households as our strong price gaps resonate with customers who are increasingly prioritizing value and convenience.
With these details in mind, let’s take a look at the top small cap consumer staple stock picks of billionaires, out of which some top picks are John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), Hims & Hers Health, Inc. (NYSE:HIMS), and Herbalife Ltd. (NYSE:HLF).
Nejron Photo/Shutterstock.com
Our Methodology
To make our list of the top small cap consumer staples stocks bought by billionaires, we first gathered the fifty largest small cap consumer staples companies in terms of their market capitalization. They were then ranked according to the number of billionaire investors as of Q1 2023 and the resulting list of small cap consumer staples stocks being bought by billionaires is as follows.
10 Small Cap Consumer Staples Stocks Billionaires Are Loading Up On
10. Ingles Markets, Incorporated (NASDAQ:IMKTA)
Number of Billionaire Investors In Q1 2023: 8
Ingles Markets, Incorporated (NASDAQ:IMKTA) is a grocery store company headquartered in Asheville, North Carolina. The firm was set up in 1963 and it also has a milk processing and beverage plant that provides products to other retailers as well.
By the end of this year’s first quarter, 17 of the 943 hedge funds part of Insider Monkey’s database had bought a stake in the firm. Out of these, Ingles Markets, Incorporated (NASDAQ:IMKTA)’s largest hedge fund investor is Chuck Royce’s Royce & Associates with a $61 million investment.
Hims & Hers Health, Inc. (NYSE:HIMS), John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), and Herbalife Ltd. (NYSE:HLF) are met by Ingles Markets, Incorporated (NASDAQ:IMKTA) in our list of consumer staples stocks that billionaires are buying.
9. Weis Markets, Inc. (NYSE:WMK)
Number of Billionaire Investors In Q1 2023: 8
Weis Markets, Inc. (NYSE:WMK) is another grocery store company. It has a presence in several American states such as Delaware, New York, Maryland, and Virginia. The firm was set up in 1912 and is headquartered in Sunbury, Pennsylvania.
14 of the 943 hedge funds part of Insider Monkey’s database had invested in Weis Markets, Inc. (NYSE:WMK) during Q1 2023. The firm’s largest hedge fund investor is Jim Simons’s Renaissance Technologies since it owns 363,625 shares that are worth $30 million.
8. Adtalem Global Education Inc. (NYSE:ATGE)
Number of Billionaire Investors In Q1 2023: 8
Adtalem Global Education Inc. (NYSE:ATGE) is an American firm based in Chicago, Illinois. It provides certificates and degrees for different professions such as business, public administration, and social work.
Insider Monkey’s first quarter of 2023 survey of 943 hedge funds revealed that 15 had bought the firm’s shares. Out of these, Adtalem Global Education Inc. (NYSE:ATGE)’s largest shareholder is John W. Rogers’ Ariel Investments with a $147 million stake.
7. Central Garden & Pet Company (NASDAQ:CENT)
Number of Billionaire Investors In Q1 2023: 8
Central Garden & Pet Company (NASDAQ:CENT) is a packaged food company based in Walnut Creek, California. It sells garden and pet supplies, such as pumps, food, and other products.
13 of the 943 hedge funds profiled by Insider Monkey for their March quarter of 2023 shareholdings had invested in Central Garden & Pet Company (NASDAQ:CENT). Steven Boyd’s Armistice Capital is the largest investor with a $53 million stake.
6. Perdoceo Education Corporation (NASDAQ:PRDO)
Number of Billionaire Investors In Q1 2023: 9
Perdoceo Education Corporation (NASDAQ:PRDO) is a university company operating out of Schaumburg, Illinois. It runs two university systems, namely the American InterContinental University and Colorado Technical University.
Insider Monkey dug through 943 hedge fund portfolios and found out that 22 had held a stake in the firm as of Q1 2023. Out of these, nine are billionaires with a cumulative investment of $78 million in Perdoceo Education Corporation (NASDAQ:PRDO).
John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS), Perdoceo Education Corporation (NASDAQ:PRDO), Hims & Hers Health, Inc. (NYSE:HIMS), and Herbalife Ltd. (NYSE:HLF) are some consumer defensive stocks that billionaires are buying.
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Disclosure: None. 10 Small Cap Consumer Staples Stocks Billionaires Are Loading Up On is posted on Insider Monkey.