Walmart is a multinational retail corporation that’s grown into the largest retailer in the world over the last 50 years. Through innovation, the corporation has created a seamless shopping experience both in-store and online. It operates close to 11,500 stores in 27 countries and e-commerce websites in 10 countries.
The company first went public in 1970 and provides an annual cash dividend, paid quarterly to all shareholders. WMT employs close to 2.2 million associates worldwide and reported $524 billion in revenue for the fiscal year ended January 31, 2020. As of March 18, 2020, WMT had 217,840 holders of its common stock. WMT reported a price-to-earnings ratio of $24.94 and earnings per share of $5.19.
Should the economic recession last longer than experts anticipate, Coca-Cola is well-positioned for potential volatility. That’s because as a premier soft drinks and beverages provider, Coca-Cola benefits from the “cheap thrill” thesis. Essentially, its products offer a cheap, sugary high – a brief respite from the doldrums.
In addition, KO stock affords stakeholders a reliable business. Over the trailing year, EPS is $1.80. Moreover, Coca-Cola offers a fairly sizable dividend yield at 3.3%.
General Mills (NYSE:GIS)
General Mills is a leading global packaged food company that produces snacks, cereal, convenient meals, yogurt, dough, baking mixes and ingredients, pet food, and superpremium ice cream. Its largest brands are Nature Valley, Cheerios, Old El Paso, Yoplait, Pillsbury, Betty Crocker, BLUE, and Haagen-Dazs. In fiscal 2022, 77% of its revenue was derived from the United States, although the company also operates in Canada, Europe, Australia, Asia, and Latin America. While most of General Mills’ products are sold through retail stores to consumers, the company also sells products into the food-service channel and the commercial baking industry.
Procter & Gamble (NYSE:PG)
Since its founding in 1837, Procter & Gamble has become one of the world’s largest consumer product manufacturers, generating more than $80 billion in annual sales. It operates with a lineup of leading brands, including more than 20 that generate north of $1 billion each in annual global sales, such as Tide laundry detergent, Charmin toilet paper, Pantene shampoo, and Pampers diapers. P&G sold its last remaining food brand, Pringles, to Kellogg in calendar 2012. Sales outside its home turf represent around 55% of the firm’s consolidated total, with around one third coming from emerging markets.
Since its founding in 1806, Colgate-Palmolive has grown to become a leading global consumer product company. In addition to its namesake oral care line, the firm manufactures shampoos, shower gels, deodorants, and home care products that are sold in over 200 countries (international sales account for about 70% of its consolidated total, including approximately 45% from emerging regions). It also owns specialty pet food maker Hill’s, which sells its products through veterinarians and specialty pet retailers.
Tyson Foods (NYSE:TSN)
Tyson Foods is the largest U.S. producer of processed chicken and beef. It’s also a large producer of processed pork and protein-based products under the brands Jimmy Dean, Hillshire Farm, Ball Park, Sara Lee, Aidells, State Fair, and Raised & Rooted, to name a few. Tyson sells 81% of its products through various U.S. channels, including retailers (47% in fiscal 2021), food service (32%), and other packaged food and industrial companies (10%). In addition, 11% of the company’s revenue comes from exports to Canada, Mexico, Brazil, Europe, China, and Japan.
General Electric (NYSE:GE)
GE was formed through the combination of two companies in 1892, including one with historical ties to American inventor Thomas Edison. Today, GE is a global leader in air travel, precision health, and in the energy transition. The company is known for its differentiated technology and its massive industrial installed base of equipment sprawled throughout the world. That installed base most notably includes aerospace engines, gas and steam turbines, onshore and offshore wind turbines, as well as medical diagnostic and mobile equipment. GE earns most of its profits on the service revenue of that equipment, which is generally higher-margin. The company is led by former Danaher alum Larry Culp who is leading a multi-year turnaround of the storied conglomerate based on Lean principles.
Estee Lauder Cos (NYSE:EL)
Estee Lauder is the world leader in the global prestige beauty market, participating across skincare (56% of fiscal 2022 sales), makeup (26%), fragrance (14%), and haircare (4%) categories, with popular brands such as Estee Lauder, Clinique, MAC, La Mer, Jo Malone, Aveda, Bobbi Brown, Too Faced, Origins, Dr. Jart+, and The Ordinary. The firm operates in 150 countries, with 26% of fiscal 2022 revenue stemming from the Americas, 43% from Europe, the Middle East and Africa, and 31% from Asia-Pacific. The company sells its products through department stores, travel retail, multibrand specialty beauty stores, brand-dedicated freestanding stores, e-commerce, salons/spas, and perfumeries.
Anheuser-Busch InBev (NYSE:BUD)
Anheuser-Busch InBev is the largest brewer in the world and one of the world’s top five consumer product companies, as measured by EBITDA. After the SABMiller acquisition, the company’s portfolio now contains five of the top 10 beer brands by sales and 18 brands with retail sales over $1 billion. AB InBev was created by the 2008 merger of Belgium-based InBev and U.S.-based Anheuser-Busch. The firm holds a 62% economic interest in Ambev and in 2016 acquired SABMiller.
Keurig Dr Pepper (NASDAQ:KDP)
Keurig Dr Pepper was established in 2018 following a merger between Keurig Green Mountain Coffee and Dr Pepper Snapple. The company manufactures and distributes coffee systems (including coffee brewers and single-serve coffee pods) under the Keurig and Green Mountain brands, as well as ready-to-drink beverages including flavored (non-cola) sparkling soft drinks under well-known brands such as Dr Pepper, Snapple, and Canada Dry. The company controls production and route to market for its own brands through in-house manufacturing plants and distribution infrastructure and leverages these facilities to manufacture and distribute for third-party coffee and beverage brands via licensing and partnership agreements. U.S. and Canada make up 95% of revenues, with the rest from Mexico.
Defensive stock trading is an all-weather type of investment. It can keep your pockets stuffed through market turbulence, even when the wider market is struggling. People can’t cut back on consumer staples (think beverage and tobacco products, household goods, personal products and food and drug retailers).
Remember, it’s much easier to lean into these stocks because they often stand out. At the same time, how many of these stocks should you hold at any one time? You want to hedge your bets and protect your portfolio, but how much is too much? Here are the best consumer defensive stocks that deserve your attention.
The Best Consumer Defensive Stocks
Overview of Consumer Defensive Stocks
The consumer sector produces products people need almost on a daily basis. Consumer defensive stocks are great investments in virtually any economic environment, including economic slowdowns. Because every slowdown is different, you need a solid defense for your portfolio, stocks that can protect you, stocks you can count on and even reliable income from dividends.
Unlike cyclical stocks, which are highly dependent on the economic cycle, defensive stocks generate stable profits through all stages of the economic cycle. The simple idea behind investing in defensive stocks is to shield against significant decreases in share prices, which occur during either bear markets or market corrections.
Although consumer defensive sectors offer price stability through the economic cycle, the tradeoff is that they experience less growth during market upswings compared to higher-risk, cyclical sectors. The industry groups considered to be defensive include:
- Consumer staples (household goods, groceries, etc.)
- Healthcare (including hospital systems, research firms, etc.)
- Energy assets
- Defense contractors
- Aerospace firms
At the same time, not every company in those sectors is invincible. The market can shift away from any business at any time. The idea of consumer defensive stocks is that they tend to perform well in uncertain economic times If that changes, you may need to exit your position. Not all stocks are right for all investors. At times, you may work with people who don’t invest in stocks that you love simply because those assets don’t match their needs. However, times may change and you might notice a difference going forward.
Best Online Brokers for Consumer Defensive Stock
Online brokers don’t just let you execute and track stock trades. They provide extensive research material, tools to backtest strategies and charting capabilities for better market analysis. Here’s a list of the best brokers in the industry. Remember, choosing the best broker for your needs is more about choosing the best fit and fees. You don’t need to just go for a name, and you can’t rely on the recommendations of others.
Benefits of Consumer Defensive Stocks
When you invest in consumer defensive stocks, remember that you’re reaping several benefits all in one. However, you shouldn’t purchase consumer defensive stocks in a bubble. You’re looking for benefits that will stay with you whether the economy is strong or not.
- Price stability: Consumer defensive stocks are stable because they are popular amongst the public, carry common household items or offer common services and tend to perform well even when the economy isn’t looking good. As a result, consumer defensive stocks can stay in your portfolio even after the economy turns around.
- Long-term growth: The stocks you purchase will continue to grow in the long term (in most cases.) Therefore, you can simply hold on to these stocks and allow them to grow. Think of these stocks as your first foray into value investing.
- Consistent business: Consumer defensive stocks are “defensive” because they have consistent business in all economic climates. This means that it’s fairly easy to research these companies are see that they have more business coming in (for example, with a defense contractor) or that they are not slumping nearly as much as the rest of the economy (for example, Walmart (NYSE: WMT) offers low prices on necessary household goods, food, clothes, etc.)
- Better governance: Because these large companies tend to perform well, you can be sure that they are governed and managed well. This means that you won’t likely be in for the surprises that you might encounter with other companies.
- Dividends: While these stocks are not guaranteed to pay dividends, it’s more likely that you might see dividends at some point.
- A bit of surety: There’s a bit of surety in blue chip and consumer defensive stocks. These stocks are not “too big to fail”, but they are in much better shape than most.
Considerations When Buying Consumer Defensive Stocks
While consumer defensive stocks offer a safe haven when the economy takes a bad turn, there are a few considerations that investors must take to heart when adding these assets to their portfolios.
- High prices: These stocks tend to come from more established companies, and that’s why their prices tend to be higher. While you might spend more now, you will likely see benefits in the future,.
- Low liquidity: Because other investors tend to hold these stocks for long periods of time, liquidity could be low in this sector.
- Changing market sentiment: Changes in market sentiment may not tank a consumer defensive stock, but the stock might stall and lose some of the earning potential that it had when you bought it.
- Long-term vs. short-term investing: When you buy into consumer defensive stocks, the idea is to hold them for as long as possible. However, many investors may use short-term strategies to make more money in the present. So, you must decide if defensive stocks are right for you. Even if they don’t fit into your trading strategy, you may want to hold some long-term assets in the background for the purposes of “value investing”.
Features to Look for in Consumer Defensive Stocks
- Market share is a huge determinant of stock profitability. It’s the proportion of an industry’s total output, capacity or sales that a company is responsible for over a given period. Capturing a dominant share of the market is valuable for 2 main reasons — companies you invest in that capture the lion’s share of the market tend to offer the highest profits and keep up with competitive threats. A leading brand will easily secure a lot of shelf space with retailers. The aim is to increase its sales margin faster than the larger industry, therefore increasing market share over time.
- Same-store sales growth helps put revenue data in perspective. Also referred to as comparable store sales, it’s the measure of revenue and sales growth from existing store locations. This metric helps you assess the operating momentum of a business, whether it attracts huge customer traffic and stands out from the competition. Weak comparable store sales could be a sign of scaling business challenges.
- Profit margins may help you evaluate the earnings power of consumer staple companies. Top consumer staples companies post market-leading profit margins attributable to large sales bases, valuable brands and effective operating structures. Higher margins on this metric often indicate stronger earnings and a greater stock pricing power.
- The type of business that the company does is quite important. You may feel as though a company like Walmart (WMT: NYSE) is stable, and that might be so. However, a defense contractor like Northrup Grumman (NYSE: NOC) is even more stable because they hold billions of dollars in government contracts.
Defend Your Portfolio Against Stock Market Slumps
Having a few of these stocks can help you hedge against stock market shocks. Although these stocks aren’t the best performers in a bull market, they usually go up when the market slips. A portfolio containing defensives is more likely to offer a dividend. A regular income is always nice to have, especially during tough economic times. At the same time, holding these stocks can benefit you greatly in 5, 10, 15, 20 years or more.
Are consumer defensive stocks a good investment?
Consumer defensive stocks are a great investment because they consist of things that people must buy.
Is Costco a consumer defensive stock?
Yes, Costco is a consumer defensive stock, but some believe that the business relies too heavily on subscription and membership fees, meaning that an economic downturn could convert the business into a consumer cyclical stock.
What kind of stocks are consumer defensive stocks?
Consumer de fensive stocks are shares in companies in the food and beverage industry, manufacturers, utility,and healthcare companies.