Best Consumer Staples Stocks to Buy in 2022 | The Motley Fool

You rely on consumer staples every day. They include daily essentials such as food and beverages, personal care products, household and home care products ... 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LogIn Help JoinTheMotleyFool LatestStockPicks Investing > StockMarket > MarketSectors > ConsumerStaples InvestinginConsumerStaplesStocks By JeremyBowman– Updated Sep19,2022at9:27PM Yourelyonconsumerstapleseveryday.Theyincludedailyessentialssuchasfoodandbeverages,personalcareproducts,householdandhomecareproductssuchaspapergoods,andalcohol,tobacco,andcosmetics.Youbuyconsumerstaplesregardlessofthestateoftheeconomy,andtheamountyoubuyisrelativelyfixedingoodtimesandbad.Inthisway,theconsumerstaplessectorbehavesmuchdifferentlythanconsumerdiscretionarybusinessessuchasrestaurants,hotels,andapparel,orconsumerdurables,whicharelong-lastingproductssuchasfurnitureandelectronics.Consumerstaplescompaniesmaynothavethehighestearningsgrowthoryear-over-yearrevenuegrowthbecausethesestockstendtobelarge,maturecompanies.Historically,thesectorhasexperiencedrelativelylittledisruption.Butthesestocksmakeupformodestgrowthwithlowpricevolatility,reliableprofits,dividends,anddefensivepositioning. ImageSource:GettyImages AdvantagesofconsumerstaplesstocksConsumerstaplesstocksfunctioninanon-cyclicalmanner,meaningtheyofferinvestorssafetyduringrecessionaryclimates.Sincethesecompaniessellgoodssuchasfoodandcleaningproductsthatconsumersrelyonregardlessofthestateoftheeconomy,theytendtogeneratesolidprofitseveninweakeconomies.Forinstance,anumberofconsumerstaplescompaniesthrivedduringtheearlystagesoftheCOVID-19pandemicasconsumersstockeduponessentialsandavoidedspendingondiscretionarypurchasessuchastravelandrestaurantmeals.Morerecently,thatspendinghasshiftedbacktodiscretionarycategories,weighingonsomeconsumerstaplesstockssuchasClorox(NYSE:CLX),whichhadearlierbenefitedfromthedemandforcleaningproducts. Didyouknow... Consumerstaplesarenoncyclical,meaningtheyofferinvestorssafetyduringrecessionaryclimates. SomeconsumerstaplesstocksareDividendAristocrats--companiesthathaveincreasedtheirdividendpayoutseveryyearforatleast25consecutiveyears.Forthisreason,consumerstaplesstocksareoftenpopularwithretireesandotherinvestorsseekinglong-termincomeandsecurity.ManyofferbetterdividendyieldsthananS&P500(SNPINDEX:^GSPC)exchange-tradedfund(ETF),whichcurrentlypaysadividendyieldofroughly1.5%.Becauseconsumerstaplescompaniesoperateinstablesectorsandsellproductsthatarealwaysindemand,thebiggestoneshavebeenaroundforacenturyormore.Theirlongevityisareflectionoftheirbrandvalue,ahistoryofacquiringsmallerbrands,andtheirabilitytoendureawiderangeofchallengesandeconomiccycles.Oneimportantfactortomonitorwhenlookingataconsumerstaplescompanyisitsabilitytopassoncostincreases.Althoughthisissueoftentakescenterstageduringinflationaryperiods(liketoday),itisalwaysanimportantcomponentofgrowth.Simplepriceincreases,changingpackagingsizes,andproductioninnovationareallvitaltacticsthatgetused.Ininflationaryperiods,costsforingredients,labor,anddistributionoftenrisefasterthanacompany’sabilitytopassonpricechanges.Therecanbeaperiodofmarginweaknessthatwilllikelybetemporaryforthebest-managedconsumerstaplescompanies.Priceincreasesalsoneedtobebalancedagainsttheriskofconsumerstradingdowntocheaperalternatives. TopconsumerstaplesstockstobuyJustasyou’refamiliarwithmanyconsumerstaplesproducts,you’lllikelybefamiliarwithmanyofthetopstocksinthesectorsuchasProcter&Gamble(NYSE:PG),PepsiCo(NYSE:PEP),andEsteeLauder(NYSE:EL).Forthoseinterestedinacontrarianname,Unilever(NYSE:UL)isalsoworthexamining.1.Procter&GambleProcter&GambleisbestknownforitsmarqueebrandssuchasTide,Gillette,andCrest.Thehouseholdandpersonalcarecompanyisalmost200yearsold.AlargenumberofitsbrandsholdtheNo.1orNo.2marketsharepositionintheircategories,includingpaperproducts,laundrydetergent,diapers,andbeautyproducts.P&GisalsoaDividendAristocrat.P&Giscurrentlydevelopinginnovativeproducts,includingthenontoxicinsectrepellentZevo.In2019,itreleasedalineofplant-basedcleaningproductscalledHomeMadeSimple.Afterstreamliningitsbusinessbysellingoffnon-corebrands,restructuring,andcuttingcosts,P&G'spositionisasstrongasever.Likeotherconsumerstaplescompanies,P&Greceivedahealthyboostfromthepandemic.However,thecompany’sresultshavecontinuedtobestrong,withorganicsales(whichexcludetheeffectsofacquisitions,divestitures,andcurrencyexchanges)up10%duringthefiscalthirdquarterendingJune30,2022.Coreearningspersharealsorose6%.Notably,theorganicsalesgainwasdrivenbyamixtureofhighervolume,priceincreases,andsellingmorehigher-priceditems.Thecompanyishittingonallcylinders. 2.PepsiCoPepsiCoismuchmorethanitsnamesakebeveragebrand.ThecompanyalsoownsFrito-LayandQuaker,aswellaspopulardrinkbrandssuchasMountainDewandGatorade.ItsFrito-LaysnackbusinessgeneratesalmostasmuchrevenueinNorthAmericaasitsbeverages,andthatbusinesshasbeenasourceofgrowthwhilesodasalesslowintheU.S.andaroundtheworld.Withitsglobalbrandsanddistribution,PepsienjoysmanyofthesameadvantagesasindustrygiantsP&GandbeveragecompanycompetitorCoca-Cola(NYSE:KO).Becauseofitsexposuretotherestaurantindustry,Pepsiwasmoreaffectedbytheearlystagesofthepandemic.However,thecompanywasabletoquicklyrecover,anditposted9.5%organicrevenuegrowthin2021.Throughthefirstsixmonthsof2022,itkepttheballrollingbyexpandingorganicrevenuegrowthby13.3%.Pepsihasalsogrownthroughacquisitions.In2018,itacquiredSodaStream,whichgavethecompanyaleadingpositionincountertopsoda-making.ItalsoboughtenergydrinkmakerRockstarEnergyin2020.PepsiCorecentlybecameaDividendKing,havingraiseditsquarterlypayoutfor50yearsinarow,whichshowsthatit’sanattractivestockforincomeinvestors.3.EsteeLauderThecosmeticssubsectortendstobemorevolatilethanotherpartsoftheconsumerstaplesindustry.That’sbecausetrendsinthebeautybusiness,whicharesubjecttobroaderfashiontastes,tendtochangemorequicklyandattractsmallerbrands.Additionally,cosmeticscompanieswerehitharderbytheCOVID-19pandemicthanmostconsumerstaplesbusinessesbecausesocialdistancingledtoadeclineinthedemandformakeupandfragrances.Nonetheless,EsteeLauderhasbeenatopperformer,morethandoublingtheS&P500’sroughly60%returnoverthepastfiveyears.However,thatincludesamoredramaticascentandamuchsteeperdeclineduringthe2022bearmarket,highlightingthevolatilenatureofthesector.EsteeLauderisthesecond-biggestpure-playcosmeticscompanyintheworldbehindL’Oreal(OTC:LRLCY),andithasanimpressivearrayofprestigebeautybrands,includingClinique,Aveda,LaMer,andMAC.Thecompany’srecentgrowthhasbeendriveninlargepartbyitssuccessintheChinesemarket,whereitsskincareproductshaveperformedparticularlywell.Thatsaid,recenteffortsinChinatocontainthespreadofCOVID-19haveledthecompanytoreduceitsfiscal2022guidance.Thedropwasnotable,takingorganicsalesgrowthtobetween5%and7%,downfromthepreviousguidanceof10%to13%.Still,thestockislikelytobeagoodchoiceforinvestorslookingforamixofhighgrowthandthestabilityofatraditionalconsumerstaplesstockdespitethenear-termuncertaintyrelatedtopandemicissues.4.UnileverForinvestorswhoprefertotakeacontrarianapproach,Unileverisworkingonabusinessturnaround.Thenegativeshere,whichincludethefailuretoconsummateahigh-profileacquisition,havelefttheshareswithahistoricallyhighdividendyieldofabout4.2%.What’smostinteresting,however,isthatactivistinvestorNelsonPeltz–whowasinstrumentalinturningProcter&Gamble’sbusinessaround–hasbeenaddedtoUnilever’sboardofdirectors.Althoughthereisunlikelytobeashort-termfixtoUnilever’sproblems,thecompanyisalreadystreamliningitsbusinesstoincreasetheaccountabilityofkeyleaders,somethingPeltzhassuggestedisnecessary.And,withiconicglobalbrandssuchasDove,Ben&Jerry’s,Knorr,andHellmann’s,thecompanyhasastrongbrandportfoliotoleanonasitworkstoimproveitsgrowthprofile.Long-terminvestorscanhappilycollectthegenerousyieldwhilewaitingforUnilever’sbusinessperformancetoimprove. ConsumerstaplesETFsForinvestorswhopreferexposuretothewholeconsumerstaplessectorratherthanpickingindividualstocks,buyingsharesinanexchange-tradedfund(ETF)isthemostsensibleoption.ThechartbelowsummarizesthreedifferentconsumerstaplesETFs: Datasource:Vanguard,iShares,andSSGA. FundName ExpenseRatio ConsumerStaplesSelectSPDRFund(NYSEMKT:XLP) 0.1% VanguardConsumerStaplesETF(NYSEMKT:VDC) 0.1% iSharesU.S.ConsumerGoodsETF(NYSEMKT:IYK) 0.41% AllthreeETFshaveProcter&GambleastheirNo.1holding.PepsiCoandCoca-Colashowupinthenexttwoslotsofeachtop-10list,withEsteeLauderturninguplowerdownontwoofthethreelists.TheiSharesU.S.ConsumerStaplesETFdoesn’tincluderetailers,buttheothertwoETFshavegiantssuchasWalmart(NYSE:WMT)andCostco(NASDAQ:COST)makingthecut.Inaddition,allthreeETFsownpopularconsumerstaplesstockssuchas:PhilipMorris(NYSE:PM)Mondelez(NASDAQ:MDLZ)Altria(NYSE:MO)Colgate-Palmolive(NYSE:CL) Agriculturestocks Agribusinessisbigbusiness.Thesecompaniesareitsleaders. Tobaccostocks Loveitorhateit,thisindustryisrecessionproof. Consumerdiscretionarystocks Whenpeoplehavealittleextracash,theyindulgeinofferingsfromthesecompanies. RetailStocks Weallgoshopping.Thesecompaniesprovidethegoodswebuyacrossindustries. Areconsumerstaplesstocksrightforyou?Thebestconsumerstaplescompaniestendtohaveconsistentlystrongorganicsales,leadingmarketshares,andattractivedividendyields.Althoughtheindustryseesrelativelylittleinnovationandgrowth,consumerstaplesproductstendtobetimeless,andthesecompaniesarelikelytocontinuetoendure.Consumerstaplescompanieshaveanexcellentabilitytowithstandrecessions,increasetheirdividends,andpostconsistent,incrementalgrowth.Allofthosecharacteristicsmakethemgoodchoicesforinvestorslookingforreliable,income-producingstocks. JeremyBowmanhasnopositioninanyofthestocksmentioned.TheMotleyFoolhaspositionsinandrecommendsCostcoWholesaleandWalmartInc.TheMotleyFoolrecommendsPhilipMorrisInternationalandUnileverandrecommendsthefollowingoptions:longJanuary2024$47.50callsonCoca-Cola.TheMotleyFoolhasadisclosurepolicy. InvestSmarterwithTheMotleyFool JoinOver1MillionPremiumMembersReceiving… NewStockPicksEachMonth DetailedAnalysisofCompanies ModelPortfolios LiveStreamingDuringMarketHours AndMuchMore GetStartedNow MotleyFoolInvestingPhilosophy #1 Buy25+Companies #2 HoldStocksfor5+Years #3 AddNewSavingsRegularly #4 HoldThroughMarketVolatility #5 LetWinnersRun #6 TargetLong-TermReturns Whydoweinvestthisway? LearnMore RelatedArticles CouldaCostcoFeeRaiseBeaBlessinginDisguise? TwoRecession-ProofDividendStocks:WhichIstheBetterBuy? CostcoStock:IsItFinallyAbouttoPop? 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