In this article, we discuss the 12 best consumer staples 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.
5. Bunge Limited (NYSE:BG)
Number of Hedge Fund Holders: 48
Bunge Limited (NYSE:BG) is an American food processing and agribusiness company that operates in 40 countries. The company also has a Sugar and Bioenergy segment that generates electricity from burning sugarcane bagasse and produces sugar and ethanol.
Bunge Limited (NYSE:BG) is a decent dividend stock and has been increasing its dividends for the last two years. As of September 28, the company has a dividend yield of 3.05% with a quarterly dividend of $0.625 per share after a 10-cent increase was announced in the previous quarter. The latest quarterly dividend was declared on August 11, payable by December 2 to the shareholders of record on November 18.
On August 12, Wolfe Research analyst Sam Margolin initiated coverage of Bunge Limited (NYSE:BG) with an Outperform rating and a price target of $127. The analyst believes the company’s growth guidance has some upside in the current commodity price environment.
Here is what Old West Investment Management had to say about Bunge Limited (NYSE:BG) in its Q1 2022 investor letter:
“Bunge (pronounced BUN-GEE) Ltd (NYSE:BG) is one of the biggest agribusinesses and food companies in the world. There are four worldwide companies that dominate the sector, the others being Archer-Daniels-Midland Cargill, and Dreyfuss. One of our favorite ways to screen for new ideas is following insider buying. When I saw the Form 4 filed by new Bunge CEO Greg Heckman, his purchase of $9 million of BG stock intrigued me. My initial thought was the company gave him the stock as a signing bonus. I contacted BG Investor Relations and asked whether it was a signing bonus or did Heckman actually write a check for $9 million. IR assured me it was his own hard-earned money that he invested in the company he was about to run.
Heckman was a long time executive at Conagra Foods who obviously sensed opportunity at BG. One of his first moves as CEO was to move the company’s HQ from New York to St. Louis, right in the middle of America’s breadbasket. BG had been plagued for years with poor decisions by underperforming management. Heckman’s decision to move to St. Louis was indicative of a no-nonsense style and he would commence cutting expenses and selling non-core assets…” (Click here to see the full text)
4. Philip Morris International Inc. (NYSE:PM)
Number of Hedge Fund Holders: 56
Philip Morris International Inc. (NYSE:PM) is one of the largest tobacco companies in the world. Tobacco has been one of the most consistently growing industries in the world after generating 12.6% returns on average for almost a century. Philip Morris International Inc. (NYSE:PM) is headquartered in New York and sells its products in 180 countries worldwide.
Since the spin-off in 2008, Philip Morris International Inc. (NYSE:PM) has increased its dividend every year. With the announcement of a 1.6% increase in its quarterly dividend on September 14, the company’s dividend rate growth stands at 176.1% at a CAGR of 7.5% over 13 years.
As of the second quarter of 2022, 56 hedge funds held a position in Philip Morris International Inc. (NYSE:PM), valued at $6.86 billion. In the previous quarter, 55 hedge funds had a stake in the company worth $6.64 billion. In Q2, GQG Partners had the most significant stake in the company with 30.44 million shares, worth over $3 billion.
Here is what First Eagle Investments had to say about Philip Morris International Inc. (NYSE:PM) in its Q2 2022 investor letter:
“Philip Morris shares benefited from the market rotation into defensive areas of the market. The company continued to make progress in its transition to next-generation, non-combustible products and, during the quarter, entered into an agreement to acquire Swedish Match, which is a Stockholm-based maker of Zyn oral nicotine pouches.”
3. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 60
The Coca-Cola Company (NYSE:KO) is one of the best consumer staple stocks because of its stability and defensive nature. The company has shown some resilience in inflationary environments. The company’s total price return in the last five years stands at 52% and 111.7% in the previous decade. Moreover, the company has passed on its bottling business to third parties in return for royalty payments, giving it higher revenue margins.
The Coca-Cola Company (NYSE:KO) has increased its dividend consistently for the last 60 years. Since FY19, the company has increased its dividend by 10% annually. The latest quarterly dividend of $0.44 was declared in July, payable on October 3 to the shareholders of record on September 16. As of September 28, the company has a dividend yield of 3.04%.
Here is what ClearBridge Investments had to say about The Coca-Cola Company (NYSE:KO) in its Q4 2021 investor letter:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like consumer staples (Coca-Cola). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”
2. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 67
Walmart Inc. (NYSE:WMT) is an American retail company that operates chains of hypermarkets, discount department stores, and grocery stores. The company also operates membership-only retail warehouse clubs through Sam’s Club division.
On September 14, KeyBanc analyst Bradley Thomas initiated coverage of Walmart Inc. (NYSE:WMT) with an Overweight rating and a $155 price target. The analyst told investors that the company “over-earned” in the pandemic and is now “under-earning” due to “grossly inaccurate inventory positioning.” However, he added that normalization of margins “bodes positively for patient investors.”
Walmart Inc. (NYSE:WMT) is on its way to becoming a dividend king next quarter as it has increased its dividend for 49 consecutive years. The company has a dividend yield of 1.71% as of September 28. The quarterly dividends for all four quarters of FY2022 were declared in February, and the latest one is due on January 3, 2023, to the shareholders of record on December 9, 2022.
1. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 71
The Procter & Gamble Company (NYSE:PG) is an American multinational consumer goods corporation. The company offers consumer health, personal care, hygiene, and other products. On August 2, Barclays analyst Lauren Lieberman reiterated an Overweight rating on the company shares and lowered his price target to $154 from $157 post Q4 results.
Despite being a defensive stock, The Procter & Gamble Company (NYSE:PG) has shown decent growth over the past few years. In the past four years, the company’s annualized revenue growth has been recorded at 4.7% and EPS at 8.3%. Furthermore, the company could pass on the higher costs triggered by inflation to its customers. In its June quarter, the company increased its commodity prices by approximately 8% and generated a revenue of $19.52 billion, which was $110 million above the market forecasts.
The Procter & Gamble Company (NYSE:PG) is a dividend king that has increased its dividend payout for the past 66 years. In the last three years, the CAGR for its dividends has stood at 7%.
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Disclosure: None. 12 Best Consumer Staple Stocks is originally published on Insider Monkey.
