12 Best Consumer Staple Stocks
In this article, we discuss the 12 best consumer staples stocks. To skip the market analysis of consumer staple stocks, go directly to the 5 Best Consumer Staple Stocks.
The consumer staples segment is a relatively defensive segment of the market. It includes food, beverages, and tobacco and producers of non-durable household goods and personal products. Furthermore, it also includes farming, agriculture, and cannabis products. The consumer staples sector has outperformed the S&P 500 in the last three recessionary periods.
During the current inflationary environment, some of the best consumer staple stocks are The Procter & Gamble Company (NYSE:PG), Walmart Inc. (NYSE:WMT), and The Coca-Cola Company (NYSE:KO). These stocks hold a steady pricing power and sell products that are necessary for consumers in any economic environment.
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Our Methodology
We carefully assessed the consumer staples sector and picked these twelve stocks based on their stability, growth, dividend history, analyst ratings, potential growth catalysts, and ability to breeze through the current economic headwinds.
The stocks are listed according to their hedge fund sentiment, which was taken from Insider Monkey’s database of 895 elite hedge funds.
12 Best Consumer Staple Stocks
12. Unilever PLC (NYSE:UL)
Number of Hedge Fund Holders: 21
Unilever PLC (NYSE:UL) is a British multinational consumer goods company. The company sells its products in 190 countries worldwide. Moreover, it is the largest soap producer in the world. In Q2 2022, the activist investor Nelson Peltz acquired a 1.5% stake in the company and joined its board. These signs of activism show good future prospects for the company.
Unilever PLC (NYSE:UL) is one of the best consumer staples companies due to its constant expansion through acquisitions. In 2021, the company bought the premium skincare company Paula's Choice LLC. According to sources, Paula’s Choice LLC’s net sales grew from $75 million in 2016 to $220 million in 2020. Furthermore, the company also acquired a minority stake of 13.2% in Nutrafol, a hair supplement company with average annual revenue of $47.5 million.
As of September 27, Unilever PLC (NYSE:UL) has an impressive dividend yield of 4.02% compared to the consumer staples’ average yield of 1.89%. The latest quarterly dividend of $0.43 was paid out on September 1 to the shareholders of record on August 5.
On September 27, Unilever PLC (NYSE:UL)’s shares were upgraded to Buy by Berenberg analyst James Targett with a price target of GBP 4800, up from GBP 4,000. The analyst noted that the company’s valuation is attractive, with shares trading at a 15% discount compared to its peers.
Here is what Mayar Capital said about Unilever PLC (NYSE:UL) in its Q2 2022 investor letter:
“In 1895, the Lever brothers created a new brand of hand soap. Inspired by the growing demand for hygiene products, the Lifebuoy brand of soaps was launched to ‘make health infectious’. 128 years later the Lifebuoy brand continues as a leading soap brand – albeit without the coal tar-derived ingredients list. In fact, the market research firm Kantar ranked Lifebuoy as the global #3 most chosen FMCG brand in 2020, just below Coca-Cola (KO) and Colgate (CL) – an astonishing fact given the age of the brand. While the brand is largely absent from shelves here in the UK, it is a juggernaut in Asian markets, and is the #1 brand in India.
There are two observations about the Lifebuoy story which tell us a lot about Unilever PLC (NYSE:UL), which is currently our largest holding in the Fund.
The first is the enduring power of brands in the consumer goods market. According to Kantar’s list of most chosen brands, the top 20 global marques have an average age of 116 years, with over half being founded in the 19th century. Fashions come and go, but there is something special about low-cost consumable goods that advantages strong, time-worn brand names…” (Click here to view full text)
11. Sysco Corporation (NYSE:SYY)
Number of Hedge Fund Holders: 32
Sysco Corporation (NYSE:SYY) is an American wholesale company for food products, small wares, kitchen equipment, and tons of other consumer goods. The company operates in North America and Europe through 333 distribution facilities.
In FY2022, Sysco Corporation (NYSE:SYY) made some aggressive acquisitions of renowned companies such as Greco and Sons, Paragon Foods, and Coastal Companies. Even with these acquisitions, the company didn’t shy away from returning decent profits to shareholders.
On September 22, Stephens analyst Joshua Long initiated coverage of Sysco Corporation (NYSE:SYY) with an Overweight rating and a $90 price target. The analyst believes that the company’s investments position it to have a more favorable growth rate than its peers.
10. Lamb Weston Holdings, Inc. (NYSE:LW)
Number of Hedge Fund Holders: 35
Lamb Weston Holdings, Inc. (NYSE:LW) is an Idaho-based food processing company. It is one of the world’s largest producers of frozen potato products. The company was founded in 1950 and operates globally.
Lamb Weston Holdings, Inc. (NYSE:LW) remains to be one of the best consumer staple stocks because of its product portfolio. Potato is one of the cheapest consumer staples and easy to buy in the current inflationary environment. The company has passed on rising prices to its consumers and showed in its latest quarterly report that it outperformed its estimates along all metrics. The North American quick-service restaurant chains and full-service restaurant customers represent 50% of the company’s sales, which grew 10% on a YoY basis due to higher pricing. On the other hand, the growth of the food service and the retail segment stood at 21% and 20%, respectively.
Lamb Weston Holdings, Inc. (NYSE:LW) has a dividend yield of 1.26% as of September 28, which is lower than the industry average. However, in FY2022, the company made $151 million worth of share repurchases which added 1.3% to its shareholder returns.
Here is what Meridian Funds specifically said about Lamb Weston Holdings, Inc. (NYSE:LW) in its Q2 2022 investor letter:
“A core hedged holding in the Fund, Lamb Weston Holdings, Inc. (NYSE:LW) benefited from its defensive profile as a leading producer of affordable food staples: French fries and other frozen potato products. In addition to maintaining a leading market share in an attractive consumer category, the scale of the company’s processing and distribution capabilities represents a wide competitive moat, it’s seeing favorable supply and demand dynamics, and it possesses a healthy balance sheet. The restaurant industry’s rebound also bolstered the company’s outlook.”
9. General Mills, Inc. (NYSE:GIS)
Number of Hedge Fund Holders: 35
General Mills, Inc. (NYSE:GIS) is a Minnesota-based food processing company that manufactures and sells branded consumer foods through retail stores. As of September 27, the company stock has returned 31.42% in the past year.
General Mills, Inc. (NYSE:GIS) released its Q1 2023 earnings report on September 21. The company reported an EPS of $1.11, compared to $1.00 estimates, while revenue was in-line with the expectations at $4.72 billion. The company had a decent organic net sales growth of 10% in the quarter, and adjusted operating profit was up by 8%. In addition, General Mills, Inc. (NYSE:GIS) raised its FY2023 forecast for organic sales growth to 6%-7%, compared to the previous expectations of 4%-5%. The free cash flow conversion forecasts remain the same at 90% of the adjusted after-tax earnings.
On September 27, General Mills, Inc. (NYSE:GIS) declared a quarterly dividend of $0.54, payable on November 1, to the shareholders of record on October 10. The company's dividend yield is 2.77% as of the declaration date. Apart from dividends, the company also returns to its shareholders via repurchases. In the last ten years, it has reduced the total number of its outstanding shares by 7%. Moreover, General Mills, Inc. (NYSE:GIS) returned almost $2 billion to its shareholders in FY2022, representing a 30% increase from the previous year.
Here is what Chartwell Investment Partners had to say about General Mills, Inc. (NYSE:GIS) in its Q2 2022 investor letter:
“In the Dividend Equity accounts, the three best performers in Q2 includes General Mills (NYSE:GIS, 3.2%), up 12.2%. General Mills benefitted from the combination of being in a very defensive industry as well as demonstrating solid business momentum; margins have been particularly impressive, following price increases.”
8. The Kraft Heinz Company (NASDAQ:KHC)
Number of Hedge Fund Holders: 41
The Kraft Heinz Company (NASDAQ:KHC) is one of the USA’s largest food companies. Eight of the company’s over 20 brands have total individual sales of over $1 billion.
The Kraft Heinz Company (NASDAQ:KHC) is one of the favorites stocks of Warren Buffett, and his firm Berkshire Hathaway has been the most prominent shareholder of the company over the past several years. The firm’s stake in The Kraft Heinz Company (NASDAQ:KHC) are valued at $12.4 billion. At the end of Q2 2022, 41 hedge funds had a stake in the company, worth $13.6 billion, compared to 35 in the previous with a combined stake value of $13.4 billion.
As of September 28, The Kraft Heinz Company (NASDAQ:KHC) has a dividend yield of 4.86% and a payout ratio of 58.04%. The latest quarterly dividend of $0.40 was declared on July 27, and paid out on September 23 to the shareholders of record on August 26.
After meeting with The Kraft Heinz Company (NASDAQ:KHC) management, Stifel analyst Christopher Growe maintained a Buy rating on the company shares with a $43 price target. The analyst told investors that the meeting gave him confidence in the company’s path forward.
7. Archer-Daniels-Midland Company (NYSE:ADM)
Number of Hedge Fund Holders: 42
Archer-Daniels-Midland Company (NYSE:ADM) is an Illinois-based food processing and commodities company.
In its Co-investor Overview Handout, Archer-Daniels-Midland Company (NYSE:ADM) has laid out a plan for future acquisitions, CAPEX, and shareholder returns. The company has planned to allocate 30% to 40% of cash flows to capital expenditure, and the rest will be spent on dividends, share buybacks, and growth.
Archer-Daniels-Midland Company (NYSE:ADM) has quite promising shareholder returns with a 1.93% dividend yield as of September 28 and a long-term goal of $5 billion worth of share repurchases. The company announced a $1 billion share repurchase for FY 2022 in the year's first half. Archer-Daniels-Midland Company (NYSE:ADM) has also increased its dividends for 49 consecutive years.
Here is what Diamond Hill Capital had to say about Archer-Daniels-Midland Company (NYSE:ADM) in its Q1 2022 investor letter:
“ADM is a leading agricultural processor that also operates a global nutrition business focused on the development of ingredients and flavors for food and beverages, supplements, and more. The company’s recent operating results have benefited (unfortunately) from the war in Ukraine as grain prices and agricultural markets globally experienced strong price increases. ADM is positioned well to benefit from the volatility due to its stable North American agricultural base.”
6. Constellation Brands, Inc. (NYSE:STZ)
Number of Hedge Fund Holders: 44
Constellation Brands, Inc. (NYSE:STZ) is an American company that produces and sells beers, wines, and spirits. The company also has investments in medical and recreational marijuana segments.
Constellation Brands, Inc. (NYSE:STZ) has constantly been expanding over the years. The company has increased its production capacity four times in under a decade. The company has made some significant acquisitions and expansions in FY2022 to maintain its hold on the alcoholic beverages segment of the market. The company invested $800 million in Mexico Beer Projects, and the expansion of its Obregon Brewery is expected to increase its production capacity by 39,000 megaliters.
On September 15, JPMorgan analyst Andrea Teixeira reaffirmed an Overweight rating on Constellation Brands, Inc. (NYSE:STZ)’s shares and raised the price target to $287 from $263. The analyst believes the overall beer setup should continue to be a tailwind for the company as it is mainly favorable.
According to the Insider Monkey database, 44 hedge funds were bullish on Constellation Brands, Inc. (NYSE:STZ) stock, compared to 41 in the previous quarter. The most prominent shareholder was Arrowstreet Capital, with approximately 1.4 million shares worth $326 million. Like The Procter & Gamble Company (NYSE:PG), Walmart Inc. (NYSE:WMT), and The Coca-Cola Company (NYSE:KO), Constellation Brands, Inc. (NYSE:STZ) is one of the most popular consumer stocks among hedge funds.
Click to continue reading and see 5 Best Consumer Staple Stocks.
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Disclosure: None. 12 Best Consumer Staple Stocks is originally published on Insider Monkey.
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