Consumer Staples to Keep an Eye On

What is the consumer staples sector, and why does it exist? Whether we immediately realize it or not, we rely on consumer staples every day — everyday necessities such as cleaning and personal hygiene products, food and drink, and household/home care items like paper goods. And, let’s be sure not to forget cosmetics, tobacco, and alcohol. These are the goods most of us will buy regardless of the state of the economy, and the quantity we purchase remains pretty constant in both good and bad times. In this sense, the consumer staples sector differs significantly from consumer discretionary companies like restaurants, hotels, clothing companies, and consumer durables like furniture and electronics.

Consumer staples companies are noncyclical, which means they provide investors with a safe haven during economic downturns. These firms tend to make substantial profits even in poor economies because they offer things that consumers rely on regardless of one’s financial situation. For example, during the early stages of the pandemic, several consumer staples firms prospered as people stocked up on necessities and avoided spending on discretionary items like travel and restaurant meals.

The sector’s companies are typically often conservative and dividend-paying, which means they outperform during downturns. Many provide higher dividend rates than the S&P 500, which pays an average dividend yield of 1.3% at the moment. The biggest consumer staples firms have been around for a century or more because they operate in stable industries and provide items in constant demand. Their ability to withstand a wide range of problems and economic cycles indicates their brand value, a history of acquiring lesser businesses, and their ability to endure a wide range of challenges. This ultimately makes their stocks potentially valuable.

Let’s have just a brief look at three stocks from the Consumer Staples sector that the experts are calling great portfolio picks:

Archer-Daniels-Midland Co (ADM)

Archer-Daniels-Midland (ADM) is one of the world’s largest agricultural processors, with over 39,100 workers serving customers in 200 countries. It has been a public business since 1924 and is a member of the Dividend Aristocrats, having paid dividends for 89 years in a row. The firm is presently undergoing a transformation to provide the most outstanding possible client experience at the lowest possible cost. It had hoped to save $1.2 billion in yearly expenses by the end of 2020 but instead came up with $1.3 billion.

ADM‘s adjusted operating profit climbed 86% to $1.2 billion in the first quarter this year. This was due to solid contributions from all three operational divisions, including an 84% increase in its Ag Services and Oilseeds business, accounting for 65% of overall earnings year over year. It currently boasts a dividend yield of 2.6%. They report earnings again at the end of October but so far have shown an EPS (Earnings-per-share) of $.0.89 and revenue of $17.8 billion for the current quarter. The median price target for ADM from analysts that give 12-month predictions is 68.00, with a high of 76.00 and a low of 55.00. The median estimate reflects an increase of 7.90% from its current price. The consensus among economists is strong to buy stock in ADM.

Estee Lauder Companies Inc (EL)

Good businesses are changing all the time. Despite continuing to generate outstanding worldwide performance, Estée Lauder (EL) is no exception. The cosmetics giant’s North American group president Chris Good gave a message to EL employees in late June indicating that the changes might involve layoffs. In a memo, he wrote, “As we evolve our organization to reflect our new reality, there will be some talent impacts in certain areas of the business. While difficult, these decisions are necessary to effectively pivot to new market dynamics and lead our business into the future,”

Financially, EL is prospering in every way. It anticipates the fiscal year 2021 to be a record sales year. It expects sales of over $16 billion this year, a significant increase from the $14.3 billion it witnessed in 2020. It will also have an adjusted operating margin of 18%, the greatest in the last five years. EL reports earnings again on November 2nd, but in the meantime, has an EPS of $1.69 per share and $4.3 billion in sales. They have a dividend yield of 0.6%. The forecast from experts is good on both an annual and quarterly basis. The consensus price target for EL among analysts who provide 12-month price projections is 360.00, with a high of 393.00 and a low of 305.00. The median estimate implies an increase of 14.30% over the current price. Experts also agree on EL’s strong buy rating.

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Costco Corp (COST)

Costco Wholesale Corporation (COST) is a retail membership warehouse operator. Food & sundries, hardlines, fresh foods, and auxiliary are among the company’s product categories. United States Operations, Canadian Operations, and Other International Operations are the three segments through which it operates. James D. Sinegal and Jeffrey H. Brotman started the firm in 1983, and it is based in Issaquah, Washington.

The reality is that COST tends to thrive in both good and terrible times. While no stock is entirely immune to business downturns, it comes close. Considering that COST lives on 3.3% operating margins, the secret to its success is still passing on supplier savings to customers, with membership fees accounting for most of its earnings. Membership fee income increased by 8.5% to $2.64 billion in the first nine months of 2021. It had 60.6 million paying subscribers at the end of the third quarter, up from 55.8 million a year earlier. The median price target for COST from analysts that provide 12-month price projections is 500.00, with a high of 525.00 and a low of 385.00. The median estimate implies an increase of 10.39% from its current price. Analysts and experts agree that you should buy shares of COST.