Consumer staples was one of the better-performing sectors last year, with the Consumer Staples Select Sector SPDR (XLP) sliding less than 1%. The space is looking strong this year, with sales climbing since April.
In June, sales grew 0.2% after rising 0.3% and 0.5% in April and May, respectively. The benchmark SPDR for consumer staples has done particularly well, growing 2.8% in 2023 as of the end of July, and 4.3% over the last 12 months.
With inflation on a steady curve downward and not too many more interest rate hikes expected in the year, it seems likely that the sector would continue to gain. In a recent note made to investors on Jul 31, JPMorgan analysts earmarked consumer staples as one of the biggest gaining sectors after rate hikes come to an end. The sector has historically done well in the aftermath of Fed rate hikes.
The primary reason behind this is the availability of more cash in hand for consumers to spend. When rate hikes end, an average man’s purchasing power stops getting drawn out, and spending on staples gets a boost. Also, with the holiday season approaching in a few months' time, retail sales of staples and discretionaries should shoot up.
It would also not be prudent to ignore the very defensive nature of these stocks. Market volatility does not have a lasting impact on the sector. Consumers need their staples regardless of what transpires. The sector, thus, is fundamentally strong and resistant to the vagaries of the market.
Consumer staples may not have the highest earnings growth or year-over-year revenue growth, but the sector has experienced relatively little disruption historically. On the positive side, these stocks make up for modest growth with low price volatility, reliable profits, dividends and defensive positioning.
We have thus selected four such stocks that we believe would be gaining ground in the ensuing months and should be looked into now. The stocks below flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum; the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
e.l.f. Beauty, Inc. ELF is a cosmetic and skincare products company. Apart from national and international retailers and direct-to-consumer channels, ELF also conducts its international business via distributors.
ELF’s expected earnings growth rate for the current year is 42.2%. The Zacks Consensus Estimate for its current-year earnings has improved by 30.4% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of B.
Molson Coors Beverage Company TAP is a producer of beer and other malt beverages. Its product line comprises hard seltzers, craft and ready-to-drink products.
Molson Coors’ expected earnings growth rate for the current year is 23.4%. The Zacks Consensus Estimate for its current-year earnings has improved by 14% over the past 60 days. TAP has a Zacks Rank #1 and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
J&J SnackFoods Corp. JJSF is a nutritional snack and beverages company. It caters to the food service and retail supermarket sectors.
J&J Snack’s expected earnings growth rate for the current year is 62.3%. The Zacks Consensus Estimate for its current-year earnings has improved by 16.4% over the past 60 days. JJSF has a Zacks Rank #1 and a VGM Score of B.
The Boston Beer Company, Inc. SAM is an alcoholic beverage company operating primarily in the United States. However, it also operates internationally via importers, wholesalers and other agencies.
Boston Beer’s expected earnings growth rate for the current year is 10.2%. The Zacks Consensus Estimate for its current-year earnings has improved by 6.3% over the past 60 days. The company has a Zacks Rank #2 and a VGM Score of A.
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