We recently published a list of 8 Best Consumer Staples Stocks To Buy Right Now. In this article, we are going to take a look at where Philip Morris International Inc. (NYSE:PM) stands against other best consumer staples stocks to buy right now.
Consumer spending plays a significant role in the economy, according to the U.S. Bureau of Economic Analysis, in Q2, personal consumption expenditures represented nearly 68% of the US national GDP. As a result, economic growth and decline is often led by consumer spending. However, spending on consumer staples goods tends to be less cyclical due to the low price elasticity of demand and the demand for these goods remains relatively constant regardless of the state of the economy or the cost of the product.
The consumer staples sector is comprised of companies that produce and sell essential goods such as food, beverages, household products, and personal care items. This sector is further divided into six industries: beverages, food and staples retailing, food products, household products, personal products, and tobacco.
Despite challenges, the consumer staples sector has consistently outperformed other sectors, making it a popular choice for defensive investment strategies. The sector’s low volatility and consistent revenues also make it an attractive option for investors seeking steady growth and solid dividends.
A Safe Haven in a Volatile Market
Bryan Spillane, Managing Director of Equity Research at Bank of America Securities, in an interview with CNBC on September 20, discussed the performance of consumer staples stocks during periods of rate cuts associated with a soft landing. He noted that historically, these stocks tend to perform well in such environments, with some names consistently outperforming others.
Spillane explained that his analysis showed that certain companies have a history of outperforming their peers during periods of rate cuts. He attributed this to their high-quality business models and stable dividend payments, which make them attractive to investors seeking yield in a low-rate environment.
When asked about the current market environment, Spillane noted that the dynamics within consumer staples are complex, with factors such as price adjustments and disinflation affecting the sector. However, he believed that with interest rates coming down and consumers having more purchasing power, the sector should benefit. He specifically pointed to the discretionary impulse channels, such as convenience stores and gas stations, where companies have struggled with declining traffic. Spillane also highlighted the attractiveness of consumer staples stocks due to their dividend yields, which are historically in the 3% to 4% range. He noted that some names have even higher yields due to depressed valuations.
The consumer staples sector is an attractive option for investors seeking a defensive strategy. The sector has consistently demonstrated resilience and outperformance in various market environments. As interest rates come down and consumers regain purchasing power, the sector is poised to benefit significantly.
Our Methodology
To compile our list of the 8 best consumer staples stocks to buy right now, we used the Finviz and Yahoo stock screeners to find the largest consumer staples companies. We then narrowed our choices to 8 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A man exhaling smoke from a cigarette indicating the use of tobacco products.
Philip Morris International Inc. (NYSE:PM)
Number of Hedge Fund Investors: 70
Philip Morris International Inc. (NYSE:PM) is a global tobacco company best known for its Marlboro brand. The company operates in more than 180 countries and is taking steps to reduce the harmful effects of smoking through innovation and regulation. Philip Morris International Inc. (NYSE:PM) is focused on transforming the tobacco industry by shifting towards reduced-risk products such as IQOS, a heated tobacco system that emits on average 95% fewer harmful chemicals compared with cigarettes.
On October 22, for the fiscal third quarter of 2024, Philip Morris International Inc. (NYSE:PM) reported record net revenues and earnings per share. The company’s smoke-free business continues to drive growth, with net revenues increasing by 14.2% and gross profit up by 15.9%. As a result, Philip Morris International Inc. (NYSE:PM) has raised its full-year growth outlook for adjusted diluted EPS to a range of 14% to 15%.
The company’s smoke-free business is a key driver of growth, with shipments of smoke-free products reaching 40 billion units in 92 markets in the third quarter. This segment now accounts for 38% of total net revenues and 40% of gross profit, demonstrating the significant impact it has on the company’s overall performance.
IQOS, the company’s heat-not-burn product, continues to gain traction, with adjusted in-market sales volume up by an estimated 14.8%. This product has strengthened Philip Morris International Inc.’s (NYSE:PM) position as the second-largest nicotine brand in markets where it is present, driving the growth of the heat-not-burn category.
Philip Morris International Inc.’s (NYSE:PM) oral smoke-free products, including ZYN nicotine pouches, have also seen significant growth, with shipment volume increasing by 24.7% in cans and 22.2% in pouches or pouch equivalents. In the US, ZYN shipments reached 149.1 million cans, representing a growth of 41.4% compared to the previous year.
Overall, PM ranks 3rd on our list of best consumer staples stocks to buy right now. While we acknowledge the potential of PM to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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