We recently compiled a list of the 14 Best FMCG Stocks To Buy Now. In this article, we are going to take a look at where Dollar Tree, Inc. (NASDAQ:DLTR) stands against the other FMCG stocks.
If you walk into a modern pantry, you’re almost guaranteed to find it well-stocked with everyday essentials like toilet paper, soap and toothpaste, beverages, and food. This reflects a simple reality: most consumers prefer to keep these items in ample supply. While consumers will always demand these products, they are not entirely indifferent to price increases during inflation. Instead, they might look to save money by buying in bulk or shopping at big-box stores. Regardless, they will continue to prioritize purchasing these necessities.
Known as fast-moving consumer goods (FMCG) or consumer packaged goods (CPG), these high-demand products are valued for their affordability and rapid turnover. They are considered “fast-moving” because they quickly sell off store shelves due to their regular use by consumers. Although investors typically look towards bonds and cash to manage risk, FMCG stocks offer a defensive alternative that can provide both growth and income. While these stocks may not generate spectacular growth opportunities and can lose value as interest rates rise, they generally decline less than other sectors during recessions. In fact, certain industries, such as food, tobacco, and alcohol, may even experience increased demand during economic downturns. As one of the world’s largest industries, the global FMCG sector has seen steady growth over the past decade, driven by the trend of experiential retailing, where shopping is viewed as a social activity. The global FMCG market is projected to reach $18,939.4 billion by 2031, with a compound annual growth rate (CAGR) of 5.1% from 2022 to 2031.
Following low deal volume and value in 2020, the consumer goods landscape saw a significant shift in M&A activity. In 2021, as sizable assets in the sector became scarce and prohibitively expensive, companies strategically moved toward a higher-volume, lower-deal-value approach. According to McKinsey, this trend peaked in 2021 with around 470 consumer goods deals globally. The distribution of M&A activity varied across subsectors regarding volume and value. Food remained the largest category by deal volume, accounting for about 40%, while beverages and durables together made up an additional 30%. On the other hand, in terms of deal value, personal care led the pack with 38%, primarily driven by large spin-offs of pharmaceutical companies’ consumer businesses. A notable example includes Johnson & Johnson’s $42 billion spin-off of Kenvue last year.
As of late May, several major retailers have reported their Q1 2024 earnings, offering valuable insights into the current state of the U.S. consumer’s sentiments. With consumer spending accounting for approximately 70% of the U.S. economy, shifts in spending patterns significantly impact growth and employment. Walmart, for example, observed changes in customer behavior, with CFO John Rainey noting in the company’s Q1 earnings call:
“Many consumer pocketbooks are still stretched, and we see the effect of that in our business mix as they’re spending more of their paychecks on non-discretionary categories and less on general merchandise. This merchandise mix remains a headwind to margins, but it’s consistent with our expectations.”
This indicates that consumers are prioritizing essential groceries over discretionary items like televisions. Walmart’s earnings suggest that while overall consumer spending remains steady, those with less disposable income are struggling and continue to seek value in their purchases. In any case, despite inflation and challenging market conditions, people still need to eat and buy essentials, making FMCG stocks more resilient compared to other sectors in the stock market.
Our Methodology
After a comprehensive analysis of FMCG stocks listed on NYSE and NASDAQ using ETFs and internet rankings, we have curated a selection of the 14 top FMCG stocks to buy now according to hedge fuds.Why are we interested in the stocks that hedge funds pile into? The reason is simple, our research has shown that we can outperform the market by imitating the top stock picks of best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A shopper browsing through a discount retailers merchandise aisle filled with a wide variety of items.
Dollar Tree, Inc. (NASDAQ:DLTR)
Number of Hedge Fund Holders: 39
Dollar Tree, Inc. (NASDAQ:DLTR) is a retail chain operating in the United States, offering a diverse range of products at various price points. Headquartered in Chesapeake, Virginia, the company boasts an extensive network of over 15,000 stores across the 48 contiguous U.S. states and Canada. Leveraging a widespread logistics network comprising 24 distribution centers, Dollar Tree primarily serves price-conscious customers.
That said, not everyone seems bullish on the retailer. Citi recently downgraded Dollar Tree, Inc. (NASDAQ:DLTR) from a Buy to a Neutral rating, reducing the price target from $163 to $120. This adjustment follows concerns over the company’s recent performance and strategic decisions, particularly regarding the Family Dollar segment.
The persistent issues with Family Dollar’s turnaround have raised significant concerns, with management’s decision to explore strategic alternatives suggesting a lack of confidence in resolving these problems, potentially indicating deeper structural issues. Furthermore, the Dollar Tree segment failed to meet its comparable store sales targets in the first quarter, and the implementation of multi-price points has faced execution challenges.
According to Insider Monkey’s fourth-quarter database, 39 hedge funds expressed bullish sentiments towards Dollar Tree, Inc. (NASDAQ:DLTR), the same as the preceding quarter. Mantle Ridge LP, led by Paul Hilal, holds the largest position in the company, with 12.1 million shares valued at $1.6 billion.
Overall DLTR ranks 13th on our list of the best FMCG stocks to buy. You can visit 14 Best FMCG Stocks To Buy Now to see the other FMCG stocks that are on hedge funds’ radar. While we acknowledge the potential of DLTR as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DLTR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
