5 ‘Gotta-Have’ Consumer Stocks

by Marc Bastow | November 16, 2012 7:00 am

5 ‘Gotta-Have’ Consumer Stocks

shopping cart 5 Gotta Have Consumer StocksInvestment gurus have forever used Peter Lynch’s “buy what you know” theme on long-term investing. I’ve read entire investment newsletters that gave me a minute-by-minute report on everything a person did during his day, just to make a point about how many name-brand products pop up in a typical day — and thus why you should buy the stocks associated with those brands.

Sure, grocery stores like Kroger (NYSE:KR[1]) and Safeway (NYSE:SWY[2]) have taken their toll on that theory, eating away at the profits of a number of name-brand manufacturers … but they’ve also helped sort out which brands have the stuff to stay on top.

While some store-brand products are an acceptable facsimile (thanks to a lower price), others just don’t stack up and can’t crack our fierce loyalty. You might be willing to skimp on store-brand flour, for instance, but you’ll die before you dunk anything other than honest-to-God Oreos in milk — and that’ll never change.

That makes these five companies absolutely “gotta-have” stocks in the consumer portion of your portfolio:

Coca-Cola

Coca Cola 5 Gotta Have Consumer StocksCoca-Cola (NYSE:KO[3]) makes perhaps the world’s most conspicuous (and in one person’s view, greatest tasting and most refreshing ever) soft drink. Go to any country in the world, and you can find a Coca-Cola.

Heck, go to parts of the United States, and people will tell you they want a “Coke” — even if they don’t mean a Coke[4]. That’s how ubiquitous the product has become.

And Coca-Cola has double branding bragging rights. Not only is Coca-Cola the No. 1 branded soda in the country, but its diet product — Diet Coke — surpassed PepsiCo‘s (NYSE:PEP[5]) signature cola in 2011 to become America’s second-best-selling soda.

Along with that, Coca-Cola has a number of other popular brands, like Powerade energy drinks and Minute Maid juices.

On the investment side, Coca-C0la is the ultimate Warren Buffett poster child for investment, representing the largest percentage of Berkshire Hathaway (NYSE:BRK.A[6], BRK.B[7]) holdings. Coca-Cola has paid dividends since 1893 and currently yields about 2.8% — and a recent stock split[8] puts KO shares at a manageable $36 per share.

H.J. Heinz

HJHeinzLogo e1288367281487 5 Gotta Have Consumer Stocks

H.J. Heinz (NYSE:HNZ[9]) and its Heinz tomato ketchup have no equal in the condiment world. People scoff when they see ConAgra‘s (NYSE:CAG[10]) Hunt’s ketchup, even in the greasiest of diners, and generic brands are almost laughable.

How dominant is Heinz? It has a 60% market share in the U.S. — the world’s top ketchup market and also is the top tomato in other major ketchup markets, including Canada, Germany, Poland, Russia, the United Kingdom and Venezuela.

Of course, Heinz has expanded into numerous other brands, including Smart Ones, Ore-Ida potato products and Classico Italian sauces. Its brands are gold there, too, with Heinz boasting that products across its line enjoy No. 1 or 2 market share in more than 50 countries. And according to the 2012 American Customer Satisfaction Index, Heinz is the No. 1 brand in customer satisfaction among food manufacturers[11].

Heinz has been around for a long time — and so has its dividend, which has been paid since 1911. HNZ shares provide a sweet 3.5% yield, making them a lock for your portfolio.

Kraft Foods

KraftFoodsLogo e1282588018415 5 Gotta Have Consumer StocksOne can’t-miss winner with kids is Kraft Foods (NASDAQ:KRFT[12]) and its Macaroni & Cheese, which has been delighting children — and, let’s face it, a lot of adults — since its debut in 1937.

Restaurants across the country have increasingly tried to put their own signature spins on mac and cheese, but when it comes to no-fuss home consumption, few dare to shun the “Blue Box.”

Kraft also looks good down the road. This, from Erin Lash, CFA, via Morningstar:

“Consumers continue to eat meals at home, and Kraft’s product set is well-positioned to benefit from this trend as its portfolio of beverages, convenient meals, and snacks are already found in 98% of U.S. households.”

Want some even better news? Kraft’s $244 million in cash and equivalents is expected to fund a $2-per-share annual dividend that today would yield roughly 4.5%.

Mondelez

Mondelez185 5 Gotta Have Consumer Stocks Mondelez (NASDAQ:MDLZ[13]) is the newly spun-off[14] snack side of Kraft whose products include snacks, including one of America’s favorite cookie brands: Oreos.

The funny thing is Oreos, which were brought out in 1912, actually were a knockoff of Hydrox cookies, which debuted in 1908. But Oreos have won the test of time, holding the title of America’s best-selling cookie for parts of two centuries.

Mondelez is set up to be the “growthier” of the two Kraft halves (as InvestorPlace’s Dan Burrows discusses in more detail here[15]) — that said, Mondelez still pays out 13 cents quarterly, good for a modest 2% yield. Between the potential for capital gains and future dividend growth — and the irresistible temptation of creme and cookies — MDLZ looks like an attractive long-term play.

Procter & Gamble

ProcterGambleLogo 5 Gotta Have Consumer StocksNo look at popular brands is complete without the sundries, and you can pick your favorites from Procter & Gamble‘s (NYSE:PG[16]) branded products all day. Just a few:

Heck, you can even keep your dog happy with Iams dog food.

Investors should note that the company is undergoing a little turbulence[17], so if you’re not completely sold on P&G, you can get some exposure to it through exchange-traded funds like theĀ Consumer Staples Select Sector SPDR (NYSE:XLP[18]) or the iShares Dow Jones US Consumer Goods (NYSE:IYK[19]), which are heavily weighted in PG but also hold a number of other consumer brands, including some of those previously mentioned.

Of course, PG has paid a dividend since 1891 that’s as secure as dividends get[20], and the yield is a juicy 3.4% — so it might be worth jumping in before the company rights the ship.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. KR: http://studio-5.financialcontent.com/investplace/quote?Symbol=KR
  2. SWY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SWY
  3. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  4. even if they don’t mean a Coke: http://www.theatlanticcities.com/arts-and-lifestyle/2012/07/map-day-soda-vs-pop-vs-coke/2522/
  5. PEP: http://studio-5.financialcontent.com/investplace/quote?Symbol=PEP
  6. BRK.A: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.A
  7. BRK.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.B
  8. stock split: http://investorplace.com/2012/07/coca-cola-stock-split-gets-the-green-light/
  9. HNZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=HNZ
  10. CAG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAG
  11. No. 1 brand in customer satisfaction among food manufacturers: http://www.dailyfinance.com/2012/11/13/heinz-tops-all-food-manufacturers-in-the-american-/
  12. KRFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=KRFT
  13. MDLZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=MDLZ
  14. newly spun-off: http://investorplace.com/2012/10/kraft-spin-off-mondelez-starts-trading-today/
  15. discusses in more detail here: http://investorplace.com/2012/10/mondelez-and-kraft-still-face-big-challenges/
  16. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  17. undergoing a little turbulence: http://investorplace.com/2012/10/procter-gamble-catches-a-q1-break/
  18. XLP: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLP
  19. IYK: http://studio-5.financialcontent.com/investplace/quote?Symbol=IYK
  20. that’s as secure as dividends get: http://investorplace.com/2012/10/can-ackman-or-anyone-fix-pg/

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