7 Consumer Stocks to Buy for Reliable Gains In Any Market

Despite plenty of evidence that bullish sentiment appears stretched — with the ongoing novel coronavirus pandemic still a stubbornly key component — the reality is that the benchmark indices continue hitting all-time highs. Therefore, you might be tempted to continue piling into growth investments. However, it may be time to reconsider this narrative and instead consider consumer stocks.

For this article, I’d like to focus on consumer staples. Primarily, this sector is significantly undervalued relative to the rest of the market. For instance, the exchange-traded fund (ETF) Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP) is up 16.5%. That’s decent but the broader SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has gained over 38% during the same frame. Simply, consumer stocks generally represent better value right now.

Second, the dramatic rise of growth-driven equity segments is beginning to stretch incredulity. True, nobody knows for sure what will happen next. But based on natural market cycles, investors should at least consider the possibility of a correction. Should that happen, having some consumer stocks under your belt will mitigate volatility better than the popular flavors of the week.

Third, consumer stocks are tied to the largest segment of the U.S. economy. While debate rages on the subject, generally speaking, consumer spending, “drives about 70% of all economic activity” in this country. And that stat doesn’t come from some random blog but rather the Associated Press. Therefore, if circumstances go awry over the next several months, it’s better to have your portfolio aligned with the economy’s cornerstone segment.

Finally, if consumer stocks (particularly of the consumer staples variety) implode, we will likely have bigger problems on our hands. To me, it just makes sense to have some exposure to reliable and even defensive names during this period of uncertainty. Here are a few names to think about.

Here are 7 consumer stocks to buy for a midsummer night’s dream:

  • PepsiCo (NASDAQ:PEP)
  • Clorox (NYSE:CLX)
  • Kellogg (NYSE:K)
  • Altria Group (NYSE:MO)
  • Ross Stores (NASDAQ:ROST)
  • Estee Lauder (NYSE:EL)
  • Conagra Brands (NYSE:CAG)

Granted, while consumer stocks have a boring and pedestrian reputation, that doesn’t mean they’re completely insulated from downside risk. If the fearmongers are correct, virtually all equity sectors will suffer. But because we don’t know what’s about to happen, shifting your portfolio to include some undervalued consumer plays seems a logical tactic.

PepsiCo (PEP)

Cans of PepsiCo's (PEP) Pepsi soda are in a bucket of ice.
Source: suriyachan / Shutterstock.com

While the coronavirus pandemic was a universally despised crisis, consumer stocks generally performed well under the circumstances. Basically, it all came down to people needing to buy the essentials — along with the occasional cheap treat to keep their spirits up. And in this context, the crisis was a “perfect” one for PepsiCo.

Best known for its popular soft drinks, PepsiCo had been falling out of favor with millennials, who eschewed sugary beverages for healthier options. You could see that in the revenue trend from 2014 to 2018, which saw the company unable to build positive momentum until 2019. Then in 2020, PepsiCo rang up top-line sales of $70.4 billion, up just shy of 5% from the prior year.

Essentially, PepsiCo had a hostage audience. With lockdown measures closing down societies around the globe, the grocery store became the place to go to for consumer experimentation. Better still, even as coronavirus cases have faded from their all-time highs, PepsiCo continues to deliver encouraging growth metrics.

Who knows? It’s possible that PepsiCo managed to ingrain itself into the collective consciousness. PEP is one of the best consumer stocks on the market investors should consider.

Clorox (CLX)

a row of Clorox (CLX) wipes on a shelf
Source: Roman Tiraspolsky / Shutterstock.com

Prior to the Covid-19 pandemic, Clorox was a familiar consumer staple stock. Enjoying everyday secular demand, CLX stock was a steady investment, though it gave up exciting upside potential for that stability. Nevertheless, it was a solid idea for those who wanted passive income they could depend on.

Suddenly, the SARS-CoV-2 virus flipped this narrative on its head. CLX became one of the hottest consumer stocks to buy as everyone flocked to the grocery store to hoard hand sanitizer and other essential goods. Interestingly, CLX stock continued to rise higher until early August of last year, when shares entered a decisively bearish trend channel.

To be fair the corrective action wasn’t completely unexpected, as investors began to sense that the crisis was fading. However, two interesting complicating factors have popped up. First, first quarter of 2021 revenue almost reached parity with Q1 2020 sales, despite the start of the vaccine rollout. Second, the negativity in CLX stock appears to have hit bottom.

If you believe that we could see a resurgence of this pandemic via the delta or lambda variants, it might be a good idea to rethink Clorox once again.

Kellogg (K)

Kellogg's sign on their Canada's head office building in Mississauga
Source: JHVEPhoto / Shutterstock.com

Similar to Clorox, Kellogg is another boring consumer stock that retirees usually add to their portfolio. No, K stock isn’t even close to what you might consider an exciting investment. At the same time, when you’re approaching retirement, excitement isn’t exactly what you want. Instead, you’re seeking predictability.

Generally speaking, that’s what Kellogg provides. As a critical consumer staple, Kellogg answers the call to serve America’s broad food supply chain. It just so happens that with the Covid-19 crisis, K stock experienced a surge in relevancy. Plus investors can depend on its dividend yield, which currently stands at 3.61%.

However, with Covid-19 becoming less of an urgency in the latter half of 2020, K shares noticeably declined in value. Still, it’s possible that Kellogg is undervalued. First, the pandemic could rear its ugly head again. Second and more realistically, the uneven financial impact of the crisis suggests that the consumer economy is not quite as strong as the headlines suggest.

That would mean more demand for staples, which is exactly what we see in Kellogg’s Q1 2021 sales result, which saw an increase in the top line of 5%.

Altria Group (MO)

a sign with the Altria (MO) logo
Source: Kristi Blokhin / Shutterstock.com

While it’s controversial to discuss big tobacco firms like Altria Group in any context, they do represent one of the more intriguing consumer stock segments, especially in the context of this pandemic. Primarily, the crisis imposed significant stress on everyone, leading many folks to consider stress mitigation. A fascinating medical study by the National Institutes of Health revealed the following:

“Stress related to the COVID-19 pandemic appears to affect smokers in different ways, some smokers increase their smoking while others decrease it. While boredom and restrictions in movement might have stimulated smoking, the threat of contracting COVID-19 and becoming severely ill might have motivated others to improve their health by quitting smoking.”

Moreover, legislative winds may be giving MO stock a second shot at life. As Vaping360.com reported, California passed SB 793, which bans the sales of flavored vaping products in brick-and-mortar stores. It went into effect Jan. 1, 2021. Further, Congress ruled that shipping vape products within the U.S. and abroad is now illegal. For now, though, the U.S. Postal Service has delayed implementing the new rule.

With all the new restrictions that have been passed against vaping, Altria could benefit.

Ross Stores (ROST)

Photo of the storefront of a Ross store
Source: Shutterstock

A combination staples and discretionary play, Ross Stores could either be a solid idea or an excruciatingly painful one, depending on what kind of damage the delta variant imposes on society.

To be clear, White House chief medical advisor Dr. Anthony Fauci stated that a nationwide spike is unlikely due to the vaccination rollout.

Still, let me remind you all that this wouldn’t be the first time that government officials called this crisis inaccurately. Remember, the surgeon general once declared “Seriously people — STOP BUYING MASKS!” I know he meant well. Nevertheless, it’s difficult to trust the experts after such a misdirection.

As it relates to ROST stock, a return to normal possibly means employees going back to the office. With pajamas no longer acceptable conference attire, Ross Stores might see a big demand boost. Indeed, Q1 2021 sales results are encouraging, reflecting sales that align with pre-pandemic trends.

On the other hand, if we have another calamity, ROST could plummet. As an example, check out the devastating results for the company’s Q1 2020 earnings.

But if you don’t mind living a little dangerously with your consumer stocks, ROST might be one to consider.

Estee Lauder (EL)

An Estee Lauder retail store at Elements Shopping Mall in Hong Kong.
Source: Sorbis / Shutterstock.com

Another consumer stock that could go either way depending on how the crisis plays out, Estee Lauder should be on your radar if you’re optimistic about the economic recovery. Not surprisingly, when lockdowns and other mitigation efforts became the order of the day, sales of Estee Lauder brands took a hit. For instance, in Q2 2020, the company generated only $2.43 billion, a year-over-year loss of 32%.

But these days, the manufacturer and marketer of prestige skincare, makeup, fragrance and hair care products is making up for lost time. In Q1 2021, it rang up nearly $3.9 billion in sales, up over 15% against the year-ago quarter. Much of that stems from the reasoning I mentioned earlier with Ross Stores: as we return to normal, people have much more incentive to look good.

As well, you’ve got to figure that the single life wasn’t too pleasant for those denied the ability to go out there and mingle. However this dynamic has changed dramatically, giving EL stock a fundamental boost.

Of course, if the pandemic gets ugly again, EL is among the consumer stocks that could suffer badly so be forewarned.

Conagra Brands (CAG)

Conagra (CAG) logo on a sign outside of a corporate campus
Source: Jonathan Weiss / Shutterstock.com

Currently, those who have uncertainties about the future are largely worried about inflation. It makes sense given the rising prices in several sectors. However, this could also be a near-term bump, a reaction to the unprecedented pandemic of the past year. In my view, the longer-term risk is deflation; that is, consumers saving money for fear of the unknown.

Regardless of whether you believe in inflation, deflation or some other condition, Conagra Brands represents one of the go-to consumer stocks. As a manufacturer and distributer of food brands for the grocery, restaurant and food services industries, CAG stock is tied to a necessary business. Even in a terrible economy, people must eat.

Indeed, this narrative played out beautiful for the company’s fiscal year 2020 (ended May 31), ringing up over $11 billion. Not only was this up almost 16% from the prior year’s result, Conagra didn’t hit an annual revenue tally of at least $11 billion since 2014. Better yet, results from its latest quarter suggests that momentum is only increasing.

On the date of publication, Josh Enomoto held a long position in MO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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