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All Contents © 2019The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| December 21, 2018
The stock market’s tumble into 2018’s end has turned investors’ attention toward the more defensive market sectors. If consumer staples stocks come to mind, they should. Investors tend to pile into these types of companies – that sell must-have items such as canned goods, toothpaste and toilet paper – for their relative safety in economic slowdowns (and often, dividends).
But you must be selective, even in these supposedly safe stocks. Wall Street’s pros actually look down on a few consumer staples mainstays. For example, TipRanks shows that one of the most popular consumer staples stocks, Colgate-Palmolive (CL), currently has a “Hold” rating from top analysts – a community that typically leans toward the buy side. No wonder, then, that Kiplinger lists it among five stocks to sell for 2019.
Here are five of the best consumer staples stocks to hide out in at the moment. Using TipRanks’ stock screener, we pinpointed stocks with a “Strong Buy” analyst consensus. This is based on all the ratings from the past three months. Crucially, of course, all the following stocks also sport strong upside potential. Let’s take a look.
Data is as of Dec. 20, 2018.
Market value: $45.9 billion
Dividend yield: 1.4%
TipRanks consensus price target: $150.25 (20% upside potential)
TipRanks consensus rating: Strong Buy
Cosmetics kingpin Estee Lauder (EL, $124.91) – which owns brands including the namesake Estee Lauder, as well as Clinique, MAC and Bobbi Brown – may not be the most obvious consumer staples stock to buy. However, top analysts are bullish on the stock’s prospects and predict sizable upside ahead. That’s because once a person finds a cosmetics product they like, they tend to stick with it for years to come – good times and bad.
Oppenheimer’s Rupesh Parikh is currently tracking an impressive 62% success rate and 25% average return per each of his EL ratings. “We continue to look very favorably upon EL’s longer term prospects,” writes Parikh, who adds that investors should take advantage of any weakness from near-term volatility.
His “Buy” rating comes with a $148 price target (18% upside potential). Parikh made the call following stellar earning results at the end of October. Adjusted profits of $1.41 per share topped the Wall Street consensus expectation of $1.22. Sales growth increased a robust 11%, driven by Asia-Pacific and Travel Retail. Management raised guidance, too, while still pricing in potential moderation in China, tariff impacts, and closings of department stores. Parikh believes this should boost confidence in EL shares.
He concludes: “We believe the company’s positioning to the global prestige beauty category, a strong management team under the leadership of CEO Fabrizio Freda, and consistent track record on the M&A front position the company to continue gaining market share.” Learn more about Parikh’s and other analysts’ views on this stock via TipRanks’ EL Research Report.
Market value: $59.6 billion
Dividend yield: 2.5%
TipRanks consensus price target: $49.00 (19% upside potential)
Snack giant Mondelez International (MDLZ, $41.16) is the culprit behind many of the tastiest treats lining supermarket shelves, here and across the world. Names such as Oreo, Cadbury, Philadelphia and Toblerone all fall under the Mondelez umbrella.
David Palmer of RBC Capital is one of the top-rated consumer-goods analysts in the world. And he’s betting on MDLZ with a price target of $52 – 26% upside – which is a dollar better than his previous price target.
Change has been the norm for Mondelez, Palmer says, and so has outperformance.
“We believe that Mondelez may be realizing a higher degree of pricing power due to category and retail customer mix,” he writes. “Furthermore, we are forecasting a slow ramp up in revenue growth due to growth reinvestment, localization of decision making and overall topline focus.”
Looking further out, Palmer believes Mondelez may have the best chance among large-cap food companies to achieve solid long-term revenue and profit growth without mergers and acquisitions. That’s thanks to the twin forces of internally driven cost reduction and revenue growth. You can get more analysis in TipRanks’ MDLZ Research Report.
Market value: $107.7 billion
Dividend yield: 6.6%
TipRanks consensus price target: $98.75 (21% upside potential)
Marlboro-maker Philip Morris International (PM, $69.08) is well-known for providing international exposure and generous dividends – it yields well above 6% at the moment. But PM has some growth factors in its favor, too.
Christopher Growe of Stifel Nicolaus recently reaffirmed his “Buy” rating on the stock. That’s with a $97 price target that implies upside of about 40%. Stellar earning results prompted the following analysis:
“This quarter featured a strong heated tobacco performance, overall volume performance, and price realization all of which combined to support the top-tier profit/EPS growth. … Now, with the shares trading below their Consumer Staples peers, although above their tobacco peers, we believe the upside potential remains strong.”
Wells Fargo’s Bonnie Herzog also is impressed by the company’s operational performance. That’s especially true in the face of challenging times for the tobacco industry, and the launch of new smoke-free products.
She put the company’s outperformance down to “just pure execution.” With a strong setup into 2019, Herzog states that management is “firmly at the helm of its ship with multiple levers to drive continued growth.” For further insights, check out TipRanks’ PM Research Report.
Market value: $545.3 million
Dividend yield: N/A
TipRanks consensus price target: $18.50 (30% upside potential)
Lesser-known Primo Water (PRMW, $14.23) represents a compelling investing idea, or so say the experts. The company is a provider of multi-gallon purified bottled water, self-service refill water and water dispensers sold across the U.S. and Canada.
“General market weakness (is) providing investors excellent opportunity in Primo Water,” Barrington Research’s Michael Petusky writes. This top-rated analyst has a $20 price target on the stock, indicating shares can soar more than 41% from current levels. In fact, the analyst even singles out Primo as “probably our best idea at current valuation.”
The next three to five years are potentially a period of material outperformance for PRMW shares, he says, with shares potentially increasing by double to triple in value. “While the company has guided to long-term top-line growth of 5-8%, we think Primo could surprise and wind up closer to the upper end of its range, particularly given some of its new marketing initiatives targeting the end-user consumer.” As a result, Primo’s long-term EBITDA margins could easily exceed its targeted 20% to 22%.
Petusky has just travelled with Primo management and concludes that now is the time to buy in. “We view the current weakness in PRMW shares as an historic buying opportunity – truly,” he writes. “We urge investors not to miss this chance.”
Note that all four analysts covering the stock are bullish. See what other experts are saying with TipRanks’ PRMW Research Report.
Market value: $7.6 billion
Dividend yield: 2.4%
TipRanks consensus price target: $118.00 (36% upside potential)
Label, adhesive and RFID maker Avery Dennison (AVY, $86.69) makes labels for everything from beauty products and wine bottles to pharmaceutical goods such as tablets and syringes. You may find this stock listed under “industrials,” “consumer goods” or “consumer staples” depending on the screener.
However you classify it, Wall Street’s analyst community has a “Strong Buy” consensus and upside potential of more than 30%. The standout rating is an upgrade from top KeyBanc analyst Adam Josephson.
Josephson writes, “We are upgrading shares of Avery Dennison … (because of) our belief that companies with healthy end markets and good balance sheets will be better positioned to withstand any downturn.”
He calls concerns about AVY’s exposure to foreign-exchange headwinds and some cyclical end markets as understandable, but ultimately “overblown.” For example, AVY has Chinese exposure (~10% of sales), but it’s not overly consequential in the grand scheme of things. Instead the analyst advises investors to bear in mind that “the pressure-sensitive label market is fundamentally the fastest-growing and healthiest in our coverage universe.”
AVY’s low leverage gives it flexibility in the event the global economy weakens and asset prices fall. “The company’s return on assets is the highest in our packaging universe, an indication of the quality of AVY’s business,” Josephson writes. Get the TipRanks’ AVY Research Report here.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool that tracks more than 5,000 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.