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10 Best Consumer Staples Stocks for Investors to Buy for Good Returns in 2020

Posted on Friday, February 7th, 2020 by MarketBeat Staff

10 Best Consumer Staples Stocks for Investors to Buy for Good Returns in 2020

Consumer staples stocks are issued by companies that produce home goods, food, beverages, and hygiene products. These items are commonly found in the home.

Top Consumer Staples Companies

Most readers will recognize the names of these top companies in the consumer staples sector. These large companies generate steady cash flow and are low-risk businesses with great annual returns. They are steady stocks to buy with a low degree of volatility. They may not be so great at building a profit margin on trade activity, but their consistent earnings and steady performance make them financial gold when investing for long-term income.

What Are Consumer Staples?

Consumer staples is an incredibly broad category encompassing lots of different items one might find around the home. Going into each part of your house, you’re likely to encounter items that most people can’t just do without—hence their status as consumer staples.

For example, in the bathroom, you might find toilet paper, toothpaste, hand soap, body wash, shampoo, conditioner, and medications. In the kitchen, you’ll find paper towels, dish soap, sponges, and food and drinks in the fridge and pantry. Around other areas of the home, you might find laundry detergent and cleaning supplies.

Consumer staples are products that consumers cannot live without—or they are unwilling to live without. For example, it’s possible to wipe down counters with a rag, but many consumers prefer to use paper towels. Of course, other consumer staples are vital for life, such as food.

Since consumers are unable or unwilling to do without consumer staples—even in financially difficult times—companies that make and/or distribute them are able to continue along a path of stable growth and avoid cyclical markets that plague other industries.

Top Consumer Staples Companies

Staple stocks are the household names of Wall Street. From cereal to cigarettes and everything in between, these consumer staples companies are involved in some part of the industry, whether it’s manufacturing or consumer-facing retail.

Kroger (NYSE: KR) is the largest supermarket chain in the United States in terms of revenue, with almost $122 billion in 2019, placing it in 20th place on the Fortune 500 list of America’s biggest revenue-generating corporations. The Cincinnati-based company is a prominent player in the economy of the Midwest and South, and even nationwide, with almost 2,800 stores across 35 states. Kroger owns department stores, big-box superstores, supermarkets, and hypermarkets selling a variety of consumer staples (such as food) and consumer discretionaries (such as electronics) under the same roof.

Supermarkets are where most Americans go to purchase their consumer staples, so Kroger is well-poised to continue riding the continuous wave of production and sales that constitutes the consumer staples industry. Like most supermarket chains, Kroger had humble beginnings as a local grocery store which expanded to a few different locations and then proceeded to expand by acquiring chain after chain of regional supermarkets.

General Mills (NYSE: GIS) is one of the most recognized names in the cereal aisle, with something for everyone’s preferences: Cheerio, Trix, Cocoa Puffs, and Lucky Charms. Additionally, General Mills has a brand portfolio of 89 leading global brands such as Betty Crocker, Yoplait, Colombo, Totino's, Pillsbury, Old El Paso, and Häagen-Dazs.

General Mills traces its story back to the Minneapolis Milling Company, incorporated before the American Civil War in 1856. In 1928, the Washburn-Crosby Company (as it was then called) merged with 28 other mills to form General Mills. Part of the American tradition of Saturday morning cartoons with a bowl of cereal may have been due, in part, to General Mills sponsorship of these animated shows. Red Lobster and Olive Garden were also owned by General Mills for a brief while before the company spun off a separate company, Darden Restaurants.

PepsiCo (NASDAQ: PEP) is a food and beverage behemoth that was created from the merger of the Pepsi-Cola Company and Frito-Lay in 1965. Pepsi is probably its most recognized product, but aside from the carbonated cola drink, PepsiCo also owns Tropicana, Quaker Oats, and Gatorade. At least 22 of PepsiCo’s brands generate around $1 billion in annual revenues, and the company as a whole netted around $65 billion in 2018.

PepsiCo does business in 200 countries and is the second-largest food and beverage company in the world behind Nestle in terms of revenue. PepsiCo’s biggest competitor is CocaCola, but in 2005 Pepsi surpassed Coke for the first time in more than a century in terms of market value. However, CocaCola has retained a higher market share of soft drinks, which is one of the biggest reasons the PepsiCo strategy has focused on brand acquisition of snack foods.

Walmart (NYSE: WMT) is the largest retailer in the world, with close to 11,500 stores in more than two dozen countries under 55 different brand names—which of course includes its American operation, Walmart. These massive hypermarkets sell an all-encompassing variety of consumer staples (like food and hygiene products) and consumer discretionaries (like apparel, toys, and electronics).

Walmart is also the world’s largest company by revenue, topping the Global Fortune 500 list with $514 billion in 2019; by comparison, Amazon’s revenue was less than half that at $233 billion. Walmart is also the world’s largest employer with 2.2 million employees, which is larger than the population of New Mexico. Though Walmart is successful globally and has quite a hold on the domestic market, it has seen mixed results with its overseas endeavors.

Target (NYSE: TGT) is another large American retailer that sells consumer staples and consumer discretionaries. While Walmart tends to focus on dollar value, promoting itself as the most affordable option for consumers, Target’s marketing strategy places a little more emphasis on appealing to the lifestyle-fueled sentiments of younger, image-conscious shoppers who are not willing to sacrifice look and feel for rock-bottom prices.

The Target story begins in 1903 with the Dayton Dry Goods Company. In the 1960s, the Dayton Company (as it was then called) developed the idea of upscale discount retail, creating the Target brand. Target began to expand in the 1980s and 1990s, building its brand presence among competitors like Kmart and Walmart. Today, Target operates around 1,900 across the US. Since 2010, the company has experienced increased revitalization as it has expanded into urban markets (as opposed to the suburban big-box store format), which only strengthens its brand name among urbanites looking for trendy items at low prices.

Tyson Foods (NYSE: TSN) is the second biggest global processor and vendor of beef, chicken, and pork, and the largest exporter of red meat. Some of the biggest names in meat are part of the proverbial Tyson ranch, including Jimmy Dean, State Fair, Ball Park, Wright Brand, Aidells, and Hillshire Farm. Tyson also owns other food product brands, like Sara Lee, which sells frozen and packaged foods and baked goods.

Tyson was founded in 1935 and grew during World War II through purveying chicken, which was not rationed during wartime. As of 2014, Tyson had over 300 facilities, 33% of which are located in the US, where it employs almost six figures in manpower across 27 states. But perhaps more important than its consumer-facing operations is Tyson’s contract business with the biggest players in the restaurant industry, which include supplying meat for KFC, Taco Bell, McDonald's, Burger King, and Wendy's, in addition to many individual restaurants. Tyson also supplies meat to retail venues like Wal-Mart, IGA, and Kroger.

Coty Inc. (NYSE: COTY) is an American-based, international beauty product company that develops and sells products for skin care, nail care, and hair care, along with other cosmetics and fragrances. Out of Coty’s 77 different brands, 41 were acquired from Procter & Gamble, launching Coty into the number one spot for fragrances worldwide. The company ranks second for hair styling and hair color products and third for cosmetics.

Coty has three lines of business, one which is focused on consumers, one which promotes luxury products, and one which distributes beauty products on a contractual basis for professional venues like beauty and nail salons. Some of the most recognized names partnering with Coty Inc. to produce beauty products are Nautica, Calvin Klein, Gucci, Hugo Boss, Dolce & Gabbana, Marc Jacobs, and Rimmel—basically all the biggest players in the fashion and beauty industry.

Coca Cola, produced and distributed by the Coca-Cola Company (NYSE: KO), is synonymous with American culture just like Mickey Mouse, baseball, and apple pie (incidentally, the Coca-Cola Company has formed partnerships with two out of those three). The story of Coca-Cola goes back to 1886 when pharmacist John Stith Pemberton invented a medicinal drink to help Civil War veterans suffering from addictions to morphine.

The name comes from the alliterative power of its two main ingredients, coca leaves and kola nuts. In 1889, American businessman A.G. Candler bought the family formula from Pemberton's heirs and by the 20th century, it was sold in every state. Eventually, it was sold to the Trust Company of Georgia, which has piloted Coca-Cola through a long string of acquisitions which include Minute Maid, Odwalla, and Honest Tea. Coca-Cola itself has also developed other beverage formulas like Sprite and Fanta, a carbonated citrus beverage that is popular worldwide. Coca-Cola is also noteworthy for being the first company to use merchandise as part of its marketing strategy. 2018 revenues were reported at $32 billion.

Altria Group (NYSE: MO) is one of the world’s largest producers of tobacco products like cigarettes, which it also distributes and markets. Altria is actually the parent company of several tobacco companies, such as Phillip Morris, the name behind the legendary Marlboro brand. But Altria is not just a company that makes cigarettes; it also owns a minority in Canadian cannabis company Cronos Group, e-cigarette maker JUUL.

The company also owns part of Belgian brewing company AB Inbev, which was formed from a series of mergers and acquisitions of the largest brewing companies in the world, including Anheuser-Busch (Budweiser) and SABMiller (Miller). As a purveyor of cigarettes and a minority stakeholder of the world’s biggest alcoholic beverage company, Altria is certainly a lynchpin of fast-moving consumer goods. Despite the fact that the health hazards of cigarettes have become common public knowledge, Altria revenues still surpassed $25 billion in 2018.

Mondelez (NASDAQ: MDLZ) is an international food and beverage company whose most recognized products are the snack-food labels of the Kraft Foods Company. The name itself is a composite of the Latin word for "world" and an imaginative modification of the word "delicious." Some of the more recognized brand names among Mondelez’s baked goods, confections, and powdered drink offerings include Chips Ahoy!, Nabisco, Ritz, Oreo, Triscuit, Toblerone, Cadbury, and Tang.

Mondelez has quite a few gum and cough drop brands as well, including Stridem Halls, Chiclets, Trident, and Dentyne. These products are sold around the world in around 160 different countries, helping Mondelez reach annual revenues surpassing $26 billion. Mondelez was formed through a restructuring of Kraft Foods, which split the company into two different entities—one which would sell snack foods (Mondelez), and the other which would focus on grocery foods (Kraft Foods). Incidentally, Kraft Foods merged with Heinz to become Kraft Heinz.

Philip Morris is not an independent company but owned by Altria Group (NYSE: MO). Philip Morris began in London in 1835. The Morris family opened a New York branch in 1902, registering their cigarette brand under the name Marlboro. Incidentally, the brand was not launched until 1924, marketed as luxury cigarettes sold in hotels and restaurants. In the 1930s, Marlboro began to brand itself as a cigarette brand for women, in part due to the filter of their cigarettes, which was covered in a printed red band to hide lipstick stains.

When studies came out revealing that filtered cigarettes were less harmful than unfiltered ones, Marlboro repositioned their marketing campaigns again, this time to appeal to a male market that would prefer to smoke filtered cigarettes. The company attempted to connect their cigarettes to an image of masculinity, mainly through depictions of rugged cowboys and the mythological implications of Wild West scenery—and image that has still lingered on in the American cultural consciousness. Marlboro is remarkable for rebranding its entire image several times in order to fit the times.

Food Stocks

Food stocks are issued by companies that produce or sell food, which include supermarket chains, restaurant holding companies, and companies that actually produce food, such as Mondelez and Tyson.

The consumer staples stocks of the food industry (namely, companies that produce food or sell it directly to consumers) tend to be stable and non-cyclical. You generally won’t find these stocks in the list of biggest stock losers, although you probably won’t find them in the list of biggest stock gainers, either. Supermarket chains and food producers tend to be dependable companies, conservatively financed, steadily growing, with a dedicated customer base.

By contrast, the restaurant end of the food industry can be a bit more cyclical, especially casual dining chains like Bahama Breeze and Olive Garden—both owned by the holding company Darden, which was a spinoff of General Mills. Fast food companies generally perform consistently well since they have a loyal customer base that is likely to find their menu affordable even in tough times.

Beverage Stocks

Beverage companies tend to do very well, and they manufacture some of the fastest-moving consumer staples—soft drinks and alcoholic beverages. Companies like Coca-Cola and PepsiCo have become international behemoths because consumers love to drink beverages other than water—especially ones that carry the power of appealing marketing, a strategy that Coke and Pepsi have perfected.

Some of these beverage companies are great monthly dividend stocks. Certain investors, like Warren Buffett, have made them integral parts of their stock portfolio—such as Coca-Cola, which for a long time constituted a decent percentage of Buffett’s chosen picks. Beverage stocks might also prove an intriguing area for investors interested in THC startups in the ongoing cannabis boom. Some cannabis companies are bottling and distributing drinks with THC, and it will be interesting to see how these companies develop, and whether or not they are bought up by larger, more established players, such as the Molson Coors Brewing Company or Ab InBev.

Cosmetic Stocks

It’s arguable whether cosmetic stocks are consumer staples or consumer discretionaries. Keep in mind that consumer discretionaries are items that consumers can do without during hard times. Cosmetic products range from perfumes to soaps and shampoos, so there is a wide range of products, some of which may be more subject to cyclical market turns than others.

That said, dependable companies in any vertical will catch the attention of pundits and get good stock analyst ratings. Companies like Coty, AVON, Unilever, and Maybelline have a dedicated customer base and decades of business experience. Other consumer staples companies, such as Procter & Gamble, do sell beauty products, but also general hygienic products as well, which will certainly help stabilize any cyclic ups and downs experienced by their line of cosmetics and fragrances.

Consumer Staples ETF

Traders want to make money from the ups and downs of stock prices, while investors look forward to long-term profit from dividends. Either way, the average casual retail investor is not well equipped to perform a fundamental analysis of companies and assess the market in terms of market capitalization, dividend yield, and other factors.

That said, it might be best to invest in a Consumer Staples ETF, or Exchange Traded Fund. Exchange-traded funds are pooled investment vehicles where investors can buy shares of the EFT (sort of like a stock) which gives them ownership of a diversified spread of holdings from which all the investors can profit. ETFs are bought and sold on the stock market just like securities, which can make them easier to withdraw from than mutual funds or retirement accounts.

The Consumer Staples Select Sector SPDR Fund (XLP) is a safe bet of 33 different stocks with a list of diversified holdings in food, beverages, tobacco, and household products made or sold by companies in the Consumer Staples Select Sector Index. The SPDR fund website is very user-friendly and has some great visual graphs and metrics on all their investment funds.

The Fidelity MSCI Consumer Staples Index ETF (FSTA) invests more than 80% of its assets in securities in the MSCI USA IMI Consumer Staples Index, an index that tracks noteworthy stocks such as Procter & Gamble, Coca-Cola, PepsiCo, and Walmart. Of course, Fidelity is also one of the most recognized and trusted names in money management.

The Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS) is another ETF worth checking out, based on the S&P 500 Equal Weight Consumer Staples Index. This fund is equally weighted, meaning that its 33 stocks are given equal importance in terms of the percentage they garner in the portfolio.

Consumer Staples Stocks

Consumer staples stocks are a great investment choice, especially for investors who don’t mind waiting for long term growth and reaping the rewards of a dividend investing strategy. These companies manufacture fast-moving goods that get consumed and need to be replaced, creating a captivated customer base that will give them business no matter what the greater economy looks like.

In fact, some pundits like Warren Buffet have even remarked that an ETF based on a fixed fund of consumer staples stocks have outperformed even the best investing machinations of a competent managing director in terms of long term growth—not to mention the choices of a casual retail investor. Consumer staples stocks are just that good.

That said, the stocks issued by these companies will not have any exciting mountain climbs, but they won’t generally dip to depressing lows, either. The growth of these companies is stable and can provide excellent dividend producing equity. Consumer staples stocks make some of the best long-term investments for a stock portfolio.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
General Mills (GIS)$56.71flat3.46%16.30Hold$57.19
PepsiCo (PEP)$124.59flat3.07%24.01Buy$139.80
Walmart (WMT)$119.48flat1.81%23.02Buy$125.24
Target (TGT)$92.57flat2.85%14.53Buy$124.38
Tyson Foods (TSN)$53.82flat3.12%9.71Buy$84.50
The Coca-Cola (KO)$43.83flat3.74%21.17Buy$56.26
Altria Group (MO)$37.41flat8.98%-51.96Buy$52.09
Mondelez International (MDLZ)$50.79flat2.24%19.09Buy$61.20
Altria Group (MO)$37.41flat8.98%-51.96Buy$52.09
Consumer Staples Select Sector SPDR Fund (XLP)$55.35flat2.91%N/AN/AN/A
Fidelity MSCI Consumer Staples Index ETF (FSTA)$32.69flat2.94%N/AN/AN/A
Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS)$125.17flat2.53%N/AN/AN/A

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