In today’s ever-evolving economic landscape, where the threat of recession remains remarkably relevant, the allure of consumer staples stocks has become increasingly prominent.
Looking back at the previous year, we witnessed a scenario where stubborn inflation left the Federal Reserve with no option but to ratchet up interest rates.
Notably, even as the stock market has pivoted to a bull market, the U.S. recession probability stood at a concerning 62.9% as of December 2023, a noticeable jump from November’s 51.8% and well above the long-term average of 14.5%.
In this context, consumer staples stocks stand out as a strategic investment choice, offering a combination of stability and growth potential. Traditionally less affected by economic downturns, these stocks provide a major cushion in these unpredictable times. As we forge into 2024, let’s delve into seven exceptional consumer staples stocks offering healthy upside ahead.
Philip Morris (PM)
Philip Morris (NYSE:PM) often flies under the radar in the stock market realm, mainly because of its classification as a ‘sin stock’.
Yet, this label essentially belies the firm’s strategic prowess in pivoting away from traditional cigarettes. Embracing innovation, Philip Morris is effectively steering towards heated tobacco units (HTUs) and nicotine pouches, notably the ZYN brand.
This shift is more than just a pivot, as the company celebrated an impressive 18% uptick in HTU sales and a remarkable 35% boost in smoke-free product revenues in its third quarter.
Furthermore, the challenge posed by the ban on flavored HTUs and the lower margins from device sales could be perceived as a transient cloud in an otherwise sunny outlook.
However, Philip Morris isn’t resting on its laurels, as evidenced by its move to introduce its innovative new heated tobacco technology called IQOS Iluma in the U.S. market. This step is essentially a bold statement of the company’s commitment to its smoke-free future.
As 2023 unfolded, investors grappled with concerns over consumer spending on discretionary items such as soft drinks and snacks. However, PepsiCo (NASDAQ:PEP), the beverage and snack food behemoth, defied these apprehensions emphatically.
PepsiCo’s third quarter results were nothing short of impressive, with the company reporting an 8.8% year-over-year surge in organic sales, surpassing the expected 8.3% increase.
The operating profit for the quarter soared by a robust 20%. Looking ahead, CEO Ramon Laguarta expressed confidence, projecting that 2024’s organic revenue and core constant currency EPS growth will align with the higher end of long-term goals.
For fiscal 2023, PepsiCo is eyeing a 10% revenue bump and a roughly 13% growth in EPS. A staggering $7.7 billion return in dividends and share underscores the company’s commitment repurchases.
Adding to PepsiCo’s appeal is its remarkable dividend track record. The company’s annual dividend stands at an attractive $5.06, yielding 3%.
Kraft Heinz (KHC)
Kraft Heinz (NASDAQ:KHC), a leader in the packaged foods industry, holds a prestigious spot in Warren Buffett’s Berkshire portfolio, aligning seamlessly with the billionaire’s preference for consumer-centric stocks.
The company is charting a new course, invigorating its strategy with increased marketing efforts and innovation. This revitalized approach is paying off, as evidenced by its latest financial performance.
Kraft Heinz reported a significant 11.9% bump in adjusted EBITDA to $1.6 billion, surpassing the $1.5 billion consensus. The company has raised its full-year outlook, projecting an adjusted EPS in the range of $2.91 to $2.99, a notable bump from the previous forecast of $2.83 to $2.91.
Besides these operational triumphs, Kraft Heinz is strengthening its financial footing. The company focuses on deleveraging its balance sheet while maintaining a robust dividend.
Adding to this financial prudence is the announcement of a $3 billion share repurchase program, signaling confidence in its future. The company’s solid financial health is underscored by an Altman Z score of 3.92, indicating stability and safety.
Despite the secular decline in smoking rates, Altria’s (NYSE:MO) stronghold in the tobacco sector remains unshaken, thanks to the addictive nature of cigarettes ensuring a steady customer base.
This unique market dynamic positions Altria as a free cash flow-generating machine, boasting incredible profitability figures. The firm has generated a whopping $12 billion in free cash flows on a trailing twelve-month basis.
With a commitment to mid-single-digit percent dividend growth and a remarkable dividend yield of 9.7%, Altria has shown consistency and an impressive 54-year growth in adjusted earnings per share.
This move isn’t just about diversification; it shows Altria’s proactive approach to evolving market trends, signaling plenty of growth opportunities ahead. Altria, therefore, isn’t just riding the wave of its legacy products; it’s steering toward new horizons in the tobacco sphere.
Walmart (NYSE:WMT) a colossal mass-merchant retailer, shaping up to be one of the wisest investment choices for the year.
As an economic bellwether, Walmart’s diverse product range, spanning from groceries and apparel to electronics and more, positions it as a top player in the retail space.
Entering 2024, its role as a discount retailer becomes increasingly relevant as middle- and low-income consumers tighten their belts. With over 58% of its sales rooted in groceries, Walmart’s sales should remain robust, even in the face of a recession.
Besides its stronghold in traditional retail, Walmart is rapidly expanding its digital footprint. The company has made major inroads in its eCommerce capabilities post-pandemic, including expanding the range of third-party sellers and enhancing its logistics network for swifter delivery.
This strategic pivot is already bearing fruit, as evidenced in Walmart’s third quarter fiscal 2024 results released in December 2023. The report highlighted a robust 15% year-over-year growth in global e-commerce sales, totaling $24 billion. Hence, Walmart, therefore, isn’t just maintaining its market position; it’s actively evolving, signaling a promising horizon ahead.
Colgate-Palmolive (NYSE:CL) stands as a titan in the consumer goods sphere, effectively weathering economic storms with ease, underscoring its critical role in daily life.
The company’s repertoire, brimming with oral-care staples, including toothbrushes, toothpaste, and preventative solutions, has made it a household emblem of oral hygiene.
Colgate-Palmolive’s recent third-quarter earnings in the financial arena is a true testament to its powerful performance. In its most recent quarter, it reported a non-GAAP EPS of 86 cents, which effectively eclipsed estimates by six cents.
Its sales figures were equally impressive, tallying up to $4.92 billion, a significant 10.3% year-over-year bump, outstripping forecasts by $100 million. Beyond its impressive earnings, Colgate-Palmolive shines in its commitment to shareholders through its dividends. The company’s forward yield stands at an impressive 2.4%, with a staggering streak of 60 consecutive years of dividend growth.
Mondelez International (MDLZ)
Mondelez International (NASDAQ:MDLZ) is a juggernaut in the global confectionery and snacks sphere, which continues to dazzle the market with its versatile, robust business model.
The company’s third-quarter results showcased strength and immense growth. The firm reported a striking $9.02 billion in sales, a hefty 16.2% year-over-year increase, alongside an adjusted EPS of 82 cents, surpassing estimates by a notable four cents.
Its strong showing led to an upward revision in its net organic revenue growth forecast, now expected to be between 4% and 15%, compared to the prior outlook of 12%. Moreover, the adjusted EPS growth projection has been raised to 16%, up from the earlier 12% forecast.
Mondelez’s dividend profile is equally interesting. With a forward dividend yield of 2.33% and an annual payout of $1.70, coupled with a decade-worth of dividend growth. This blend of robust financial performance and shareholder value cements Mondelez’s reputation among the top-tier consumer staples stocks.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines