It’s been an unusual start to 2022 in the stock market. Flashy growth names are out. Steady value names are in.
After the S&P 500 staged a sharp recovery last month, escalating Russia-Ukraine tensions and a more hawkish Fed have dragged the benchmark down 6% year-to-date. But with the value portion of the S&P flat for the year, there continues to be a sizable gap between value and growth stock performance.
Historically, one of the best places to weather market storms has been the personal care products industry. Companies that sell well-known hygiene, beauty, and nutrition items tend to fare well in volatile conditions because consumer demand is relatively steady. Many also pay a dividend which can help soften the blow of market downturns.
Lately makers of household goods have faced cost inflation pressures like everyone else. But given that demand is inelastic for our everyday necessities, price increases are largely being absorbed by shoppers. This makes these three household names stocks to own for the current market environment.
What is a Good Defensive Stock?
Church & Dwight (NYSE: CHD) wins the award for most stable household and personal products company. No other stock in its peer group has finished up in each of the last 14 years. Up 1% year-to-date, that streak may persist.
It is Church & Dwight’s portfolio of popular consumer brands that continue to support the stock’s amazing upward trajectory that dates back to 1982. From Arm & Hammer and OxiClean to Orajel and Waterpik, consumers don’t think twice about reaching for the company’s products regardless of the economic backdrop. You name it—the 1987 crash, the dot com bubble, the 2008-09 financial crisis, and the pandemic—Church & Dwight has not only survived it but thrived through it all.
Steady sales volumes have translated to strong cash flow that enables Church & Dwight to reinvest in the business and reward shareholders. The dividend, while a modest 1%, has been increased in each of the last 27 years. Better yet, the board authorized a $1 billion share repurchase program that should provide downside protection for the remainder of the year.
Church & Dwight shares aren’t cheap at 31x trailing earnings. But like its products, it is a price well worth paying for given the company’s track record in good times and bad.
Is Procter & Gamble a Relatively Safe Stock?
Procter & Gamble (NYSE: PG) has been around since 1837, which speaks to the company’s durability and merits as a safe defensive play. Along the way it has amassed a portfolio of well-known consumer brands including Luvs diapers, Tide laundry detergent, Charmin toilet paper, Head & Shoulders shampoo, and Vicks cold & flu relief. Chances are you’ve tossed many Procter & Gamble products in your shopping cart without even knowing who owns it.
The company’s massive product empire is the engine that drives some of the highest quality financial statements in the industry. Operating cash flow is perennially healthy as is profitability. Procter & Gamble exited 2021 with a whopping $11.5 billion of cash. This, along with solid interest coverage ratios, afford it solvency and flexibility in even the toughest of economic conditions.
As a result of its consistent financial position, Procter & Gamble has raised its dividend for 65 consecutive years. The stock has had its share of dips in recent years tied to pandemic headwinds but has repeatedly recovered to new highs. When it comes to low risk ways to generate long-term portfolio growth and income, Procter and Gamble is head and shoulders above its large cap peers.
Is Colgate-Palmolive a Low-Risk Stock?
Colgate-Palmolive (NYSE: CL) is easily recognized for its namesake brands, but there is plenty more where the toothpaste and dish soap came from. Ajax cleaners, Murphy’s oil soap, Speed Stick deodorant, and Hill’s pet food are some of the company’s diverse consumer brands. It's this diversification along with a global diversification that drive solid cash flow generation year after year.
The stock’s climb from $60 to $80 over the last 10 years may seem like watching paint dry to investors who are accustomed to faster growth. However, this is precisely how you’d hope a conservative household products name to behave. It has been virtually void of noteworthy downturns throughout its trading history, a reflection of its modest but predictable growth metrics and fundamental quality.
With a nearly 40% share of the global toothpaste market, Colgate-Palmolive will continue to deliver for shareholders for as long as people are brushing teeth. A growing pet nutrition business and the reliable revenue coming from the home and personal care divisions make the stock a surefire bet. Thanks to the surge in pet adoption and spending in the wake of Covid, Hill’s Science Diet has become an increasingly important growth driver.
Meanwhile, management is investing in the company’s digital capabilities to capture shifting consumer preferences worldwide. E-commerce sales were up 27% last year. They will continue to be a key part of the strategy, proving you can indeed teach an old dog new tricks.
Colgate-Palmolive boasts a 59-year dividend hike streak of its own and currently offers a 2.3% yield. It isn’t a stock investors will clean up on, but it can produce bright smiles during rough times.
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