Consumer spending plays a significant role in the economy, according to the U.S. Bureau of Economic Analysis, in Q2, personal consumption expenditures represented nearly 68% of the US national GDP. As a result, economic growth and decline is often led by consumer spending. However, spending on consumer staples goods tends to be less cyclical due to the low price elasticity of demand and the demand for these goods remains relatively constant regardless of the state of the economy or the cost of the product.
The consumer staples sector is comprised of companies that produce and sell essential goods such as food, beverages, household products, and personal care items. This sector is further divided into six industries: beverages, food and staples retailing, food products, household products, personal products, and tobacco.
Despite challenges, the consumer staples sector has consistently outperformed other sectors, making it a popular choice for defensive investment strategies. The sector’s low volatility and consistent revenues also make it an attractive option for investors seeking steady growth and solid dividends.
A Safe Haven in a Volatile Market
Bryan Spillane, Managing Director of Equity Research at Bank of America Securities, in an interview with CNBC on September 20, discussed the performance of consumer staples stocks during periods of rate cuts associated with a soft landing. He noted that historically, these stocks tend to perform well in such environments, with some names consistently outperforming others.
Spillane explained that his analysis showed that certain companies have a history of outperforming their peers during periods of rate cuts. He attributed this to their high-quality business models and stable dividend payments, which make them attractive to investors seeking yield in a low-rate environment.
When asked about the current market environment, Spillane noted that the dynamics within consumer staples are complex, with factors such as price adjustments and disinflation affecting the sector. However, he believed that with interest rates coming down and consumers having more purchasing power, the sector should benefit. He specifically pointed to the discretionary impulse channels, such as convenience stores and gas stations, where companies have struggled with declining traffic. Spillane also highlighted the attractiveness of consumer staples stocks due to their dividend yields, which are historically in the 3% to 4% range. He noted that some names have even higher yields due to depressed valuations.
The consumer staples sector is an attractive option for investors seeking a defensive strategy. The sector has consistently demonstrated resilience and outperformance in various market environments. As interest rates come down and consumers regain purchasing power, the sector is poised to benefit significantly, with that in context let’s take a look at the 8 best consumer staples stocks to buy right now.
A busy grocery store aisle stocked with the company’s weight management products.
Our Methodology
To compile our list of the 8 best consumer staples stocks to buy right now, we used the Finviz and Yahoo stock screeners to find the largest consumer staples companies. We then narrowed our choices to 8 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Best Consumer Staples Stocks To Buy Right Now
8. Target Corporation (NYSE:TGT)
Number of Hedge Fund Investors: 52
Target Corporation (NYSE:TGT) is a major American retail corporation, offering a wide range of consumer products from groceries and clothing to electronics and home goods. The company is known for its affordable prices and stylish offerings and operates around 1,900 stores across the US.
On October 30, Target Corporation (NYSE:TGT) announced daily and weekly deals, starting from November 1 through December 25, with up to 50% off exclusive deals for members of its free-to-join Target Circle program. The company’s decision to cut regular prices on over 2,000 items across its national and owned brand assortment for the holiday season will contribute to its competitive pricing strategy. This move will not only attract price-sensitive customers but also increase the average transaction value and drive sales.
Additionally, Target Corporation (NYSE:TGT) is amplifying its first holiday marketing campaign and Target Wonderland events in New York City, Atlanta, and Dallas, which will enhance the shopping experience and create a festive atmosphere, making Target a go-to destination for holiday shopping.
Overall, Target Corporation’s (NYSE:TGT) strategic initiatives, competitive pricing, and enhanced shopping experience make it well-positioned to attract customers and drive sales during the holiday season. Additionally, Target Corporation’s (NYSE:TGT) loyalty program, Target Circle, will continue to see growth momentum. The company’s new CFO, Jim Lee, appointed in September is also expected to focus on expanding margins, with a focus on driving purchase volume per customer.
7. Kenvue Inc. (NYSE:KVUE)
Number of Hedge Fund Investors: 58
Kenvue Inc. (NYSE:KVUE) is an American consumer health company that was formed in 2022, as a spinoff from Johnson & Johnson’s Consumer Healthcare division. The company offers everyday healthcare products to consumers through popular brands such as Tylenol, Listerine, and Band-Aid.
On November 4, Kenvue Canada Inc., a division of Kenvue Inc. (NYSE:KVUE), announced the completion of its newly expanded manufacturing facility in Guelph, Ontario. The expansion has increased the facility’s manufacturing footprint by 7.5% and has enabled Kenvue Inc. (NYSE:KVUE) to significantly increase its production capacity to meet the growing demand for essential medicines including iconic brands such as Tylenol, Motrin, Benylin, and Sudafed.
The Guelph facility, which has been in operation for over 50 years, manufactures more than 100 different medications and is a key part of Kenvue Inc.’s (NYSE:KVUE) global supply chain and serves approximately 1.2 billion consumers around the world.
Kenvue Inc.’s (NYSE:KVUE) portfolio of well-known brands is a key driver of its success. The company’s brands, such as Listerine, Tylenol, Zyrtec, and Benadryl, are household names that have been trusted by consumers for decades. These brands have a strong reputation for quality and reliability, which has enabled the company to maintain its market share despite increasing competition.
Kenvue Inc. (NYSE:KVUE) has demonstrated its ability to adapt to changing consumer preferences by increasing its online presence and targeting younger consumers through social media influencers and athletes. The company has also partnered with Sydney McLaughlin-Levrone, a back-to-back Olympic gold medalist and American hurdler, to promote its Neutrogena brand. The company also aims to exit challenging overseas enterprise markets and focus on core brands.
