3 Values in Consumer Staples Stocks

Beaten down by rising interest rates, these dividend-payers hold contrarian appeal.

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Consumer staples stocks are supposed to be bastions of stability, regardless of economic conditions. But over the past year, as Standard & Poor’s 500-stock index rose 16.5%, staples stocks within the index surrendered 6.3%.

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Like many dividend-paying stocks, staples stocks tend to sag when interest rates rise and bond yields become more attractive. Staples are also getting pressure from online retailers that offer substitutes for longtime brand favorites. And growing consumer preference for cheaper, fresher food has challenged packaged-food producers. Contrarian investors might find the values tempting. These are among the better-positioned companies within the sector:

McCormick & Co. (MKC, $106, yield 2.0%) claims roughly 20% of global sales of spices and seasonings. Analysts at Credit Suisse say McCormick’s ability to raise prices without compromising demand is unparalleled. They rate the stock among the firm’s top U.S. investing ideas. Shares of snack giant Mondelez International (MDLZ, $41, 2.2%) have flagged as grocery customers flock to the fresh-food aisles. Analysts at investment research firm CFRA expect a new CEO to implement aggressive strategies to boost sales; the firm rates the stock a “buy.” Pharmacy chain Walgreens Boots Alliance (WBA, $66, 2.4%) acquired Rite Aid in March, adding 1,932 stores plus more clout to negotiate lower prices for the drugs it buys. A projected $300 million in annual cost savings by 2020 as a result of the merger is achievable, according to CFRA, which recommends the stock. Walgreens is replacing General Electric in the Dow Jones industrial average.

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Ryan Ermey
Former Associate Editor, Kiplinger's Personal Finance

Ryan joined Kiplinger in the fall of 2013. He wrote and fact-checked stories that appeared in Kiplinger's Personal Finance magazine and on Kiplinger.com. He previously interned for the CBS Evening News investigative team and worked as a copy editor and features columnist at the GW Hatchet. He holds a BA in English and creative writing from George Washington University.