The onset of the ‘new normal’ and indications about developments of a vaccine for the novel coronavirus have set the markets rolling in the past few weeks. The market has been cashing in on the positives relating to the reopening of economic activities after a strong hit witnessed in mid-March due to the nationwide lockdown.
Since April, the Dow Jones, the Nasdaq and the S&P 500 indices have appreciated 16.4%, 8.1% and 18.2%, respectively. Meanwhile, year to date, the Dow Jones, the Nasdaq and S&P 500 have contracted losses of 10.1%, 31.1% and 5%, respectively, reflecting the bottoming that occurred in March due to the coronavirus outbreak and its countermeasures.
Unlocking of Economy Lifts Consumer Sentiments
The unlocking of economic activities has boosted the U.S. unemployment rate, which reportedly declined 13.3% in May after witnessing record high growth of 14.7% in April. Moreover, consumer sentiment in the United States remained positive in June as a result of the improving job market, which led to a rise in household incomes.
Per the University of Michigan, U.S. consumer sentiment rose to 78.9 in June 2020 from 72.3 in May, which exceeded the market’s expectations of 75. Further, the Conference Board’s consumer confidence index revealed stability in May after a sharp decline in April. The consumer confidence index ticked up to 86.6 in May from 85.7 in April. The positive consumer trends are key indicators of favorable economic activities, which were further confirmed by strong retail sales growth of 17.7% for May. This followed record collapses of 16.4% and 14.7% in March and April, respectively.
Consumer Staples Sector is a Defensive Play
While the coronavirus outbreak has dealt huge blows to many sectors, the U.S. consumer staples sector has been more resilient compared with others. The sector, which includes food, beverage and tobacco products, non-durable household goods and personal products, and food and drug retailers, has historically outperformed during economic slowdowns and periods of uncertainty. The coronavirus outbreak was no exception to the trend.
Despite the disruptions, consumers continued to buy food, soap and cleaning supplies, beverages, and other essentials during the coronavirus crisis. The consumer staples companies witnessed positive sales trends throughout due to the stocking up trends prevalent in March and continued demand in the following months. Additionally, the sector players have made efforts to aggressively cut costs, leaving them well-poised to deal with the demerits of limited pricing power and lesser-than-normal growth in the top line.
In addition, the long-term growth prospects of consumer staples companies look promising as they continue to invest in digital business, which has become the order of the day. The companies are rapidly increasing investments in omni-channel capabilities, while also bolstering quick delivery options. The investments have been major growth drivers.
Further, players in the sector frequently upgrade or widen their offerings through innovation to keep pace with consumers’ changing tastes and preferences. The companies also engage in portfolio refinement through buyouts and divestitures of non-core elements. In recent years, food companies have been enriching their portfolio by adding more natural and organic brands to meet consumers’ growing inclination toward healthy offerings, which present growth opportunities.
The growth prospects of consumer staples companies make them prudent investment options for strong long-term returns.
4 Prominent Picks
While choosing the right stock may be difficult in this market, the Zacks Stock Screener comes in handy. Here, we have short-listed four consumer staples stocks that are promising investment options right now. These stocks presently sport a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Also, the stocks have gained about 20% in the past three months and boast a VGM Score of A or B.
Helen of Troy Limited HELE, which sports a Zacks Rank #1 at present, is poised to gain from its consistent online sales and digital marketing efforts. The company is on track with aggressive investments to augment digital presence through sophisticated marketing plans and improved content. Additionally, its investments in the “Leadership Brands,” including Braun, PUR and Vicks as well as parts of OXO and Honeywell, place it well to tap the evolving consumer trends. The stock has a VGM Score of B and an expected long-term earnings growth rate of 8%. The stock has gained 34% in the past three months.
BG Foods, Inc. BGS has rallied 44.9% in the past three months on gains from its pricing efforts and buyouts. The company’s strategic pricing initiatives have played an important role in strengthening revenues and profitability. Moreover, it is benefiting from the surge in demand since the middle of March, thanks to the coronavirus-led stockpiling and higher at-home consumption. This Zacks Rank #1 stock has a VGM Score of B. The company’s 2020 earnings are anticipated to jump 31.1% year over year.
United Natural Foods, Inc. UNFI has been the primary beneficiary of the rise in demand from the coronavirus outbreak-driven pantry-loading trend of essential items. The company’s recent acquisitions to expand distribution network and customer base position it for robust long-term growth. The ongoing integration synergies related to the SUPERVALU buyout are expected to help United Natural end fiscal 2020 on a strong note. The Zacks Rank #1 company has a VGM Score of A and its earnings are likely to grow 20.2% in 2020. The stock has rallied 88% in the past three months.
Nu Skin Enterprises, Inc. NUS is well-poised to gain from its advanced technology and well-strategized product programs that help in capturing greater market share and maintaining growth momentum. The company sells and distributes products through a network of sales leaders and customers. It remains focused on empowering sales leaders through product launches and engaging in technology platforms among other initiatives. This Zacks Rank #2 stock has a VGM Score of A. The company has an expected long-term earnings growth rate of 2%. Moreover, the stock soared 79.5% in the past three months.
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