Markets were already enduring fears of recession. If this was not enough, Wall Street saw a bloodbath last week after Fed Chair Jerome Powell gave a hawkish outlook on soaring inflation that is likely to compel the central bank to continue hiking interest rates aggressively.
Worries were escalated when Silicon Valley Bank, which primarily lends to tech startups, said that it had to sell $1.75 billion in shares at a loss to cover declining consumer needs. Things have since gone from bad to worse with the collapse of the bank and the Federal Deposit Insurance Corporation taking control of its management over the weekend.
SVB’s collapse has left bank stocks battered, with more than $100 billion wiped off the U.S. banking market in a single day on Monday. The freefall in share prices of financial stocks resulted in the three major indexes ending in the red last week. The Dow, the S&P 500 and the Nasdaq Composite lost 4.4%, 4.6% and 4.7%, respectively.
Consumer Staples a Safe Bet
Market volatility is likely to continue, given that too many factors have been denting investor sentiment. Given this situation, it would be ideal to invest in defensive sector stocks such as consumer staples and utilities.
The consumer staples sector is fundamentally sound and mature, as demand is typically resistant to changes in the economic cycle. The sector comprises businesses that essentially sell everyday goods and is hence defensive in nature.
Inflation had slowed a bit at the end of 2022, but has accelerated once again this year. The personal consumption expenditure (PCE) price index, the Fed's favorite monetary policy indicator, increased alarmingly by 0.6% in January after increasing 0.2% in the previous month. Year over year, PCE increased 5.4% in January.
The consumer price index (CPI) also increased by 0.5% in January and 6.4% on a year-over-year basis. Analysts had forecast a 0.4% monthly increase and a 6.2% jump on an annualized basis. The core CPI, which excludes the volatile food and energy prices, increased 0.4% in January and 5.6% from a year ago.
Moreover, ADP data showed a solid jump in private payrolls in February, while JOLTS data hinted at a tight labor market, indicating a steep rate hike by the Fed in its next policy meeting.
However, people will have to continue spending on basic necessities, which means on consumer staples, despite soaring prices. Market volatility is unlikely to affect such stocks. Hence, consumer staples stocks are safe bets for investors at this point.
The sector is also known for the consistency and transparency of its profitability and cash flows. Incorporating stocks from the consumer staples basket lends a portfolio additional resilience in a volatile market. They also pay out dividends, which indicates high-quality business and helps them withstand market volatility.
Consumer staples stocks, or, to put it another way, their business, are non-cyclical, which shields them from the vagaries of the market. Below are four consumer staples stocks that can be lucrative portfolio additions amid the ongoing market mayhem.
General Mills, Inc. ( GIS Quick Quote GIS - Free Report) is a global manufacturer and marketer of branded consumer foods sold through retail stores. The company also serves the foodservice and commercial baking industries. General Mills’ principal product categories include ready-to-eat cereals, convenient meals, snacks (including grain, fruit and savory snacks, nutrition bars, and frozen hot snacks), super-premium ice creams as well as baking mixes and ingredients.
General Mills’ expected earnings growth rate for the current year is 6.1%. The Zacks Consensus Estimate for GIS’current-year earnings has improved 1.5% over the past 60 days. GIS has a dividend yield of 2.8%. General Mills currently has a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Hershey Company ( HSY Quick Quote HSY - Free Report) is the largest chocolate manufacturer in North America as well as a global leader in chocolate and non-chocolate confectionery. Additionally, The Hershey Company manufactures pantry items like baking ingredients, toppings and beverages; and gum and mint refreshment products; snack bites and mixes, as well as spreads.
The Hershey Company’s expected earnings growth rate for the current year is 10.2%. The Zacks Consensus Estimate for the current-year earnings has improved 4.7% over the past 60 days. HSY has a dividend yield of 1.7%. The Hershey Company has a Zacks Rank #2.
Ingredion Incorporated ( INGR Quick Quote INGR - Free Report) is an ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients. Ingredionserves diverse sectors in food, beverage, brewing, pharmaceuticals and other industries.
Ingredion’s expected earnings growth rate for the current year is 11.7%. The Zacks Consensus Estimate for the current-year earnings has improved 6.4% over the past 60 days. INGR has a dividend yield of 3%. Currently, Ingredion carries a Zacks Rank #2.
Lamb Weston Holdings, Inc. ( LW Quick Quote LW - Free Report) is a leading global manufacturer, marketer and distributor of value-added frozen potato products, particularly French fries, and provides a range of appetizers. LW, along with its joint venture allies, is the top frozen potato products supplier in North America, while it also operates internationally, with a robust and growing presence in emerging markets.
Lamb Weston’s expected earnings growth rate for the current year is 89.9%. The Zacks Consensus Estimate for the current-year earnings has improved 5.9% over the past 60 days. LW has a dividend yield of 1.2%. Lamb Weston presently carries a Zacks Rank #2.