Sleep Well With These 3 Consumer Staples Stocks

Stocks to buy

Consumer staples stocks are known for being reliable stocks to buy to hedge against market volatility. The bullish case for buying consumer staples in 2023 was that these companies offer products that are in demand even when faced with high inflation. And, many of the top names in the sector would have pricing power to help protect their margins.

That story played out. But investors weren’t counting on the emergence of artificial intelligence (AI). This caused money to flow back into the technology sector as investors looked to get their piece of the next big thing.

In 2024, AI remains a story. However, with the Federal Reserve expected to lower interest rates at some point, now is a good time to consider pivoting into consumer staples stocks. But this time, instead of looking at them as a hedge against AI, you may want to buy these as the place where growth will occur.

General Mills (GIS)

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You can understand why General Mills (NYSE:GIS) was probably not happy to hear the remarks from Kellogg’s (NYSE:KLG) chief executive officer (CEO) Gary Pilnick. He recently said that families with strained finances could consider eating cereal for dinner.

On one hand, General Mills would like that. The company’s stock is down nearly 20% in the last 12 months. And that’s partly due to consumers choosing private label brands over the company’s branded products.

But it will put pressure on companies that are already being criticized for “shrinkflation.” That is the practice of putting less product into the same packaging.

A better hope for General Mills would come from a reduction in interest rates due to continually moderating inflation. That would be the best of both worlds so families would feel they have more purchasing power.

Also, it would allow investors to focus on GIS which is undervalued. Any poor forward guidance is likely already priced into a stock that’s trading at just 14.6x forward earnings. Even if you have to wait a quarter or two for the stock to recover, you’re collecting a rock solid dividend that currently yields 3.67%.

PepsiCo (PEP)

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PepsiCo (NASDAQ:PEP) is one of the easiest choices for investors looking for growth with consumer staples stocks. Investing in PEP is like buying two companies in one. That’s because, in addition to their signature soft drink brands, Pepsi owns Frito-Lay which opens a complementary revenue stream.

Still, Pepsi was not immune to the malaise that affected consumers staples stocks in 2023. In the case of Pepsi, one headwind came from the launch and subsequent buzz around weight loss drugs. However, the effect on consumer snacking habits is mostly anecdotal at this point. For its part, Pepsi says its rare revenue miss in the last quarter was due to pricing.

That could change, but investors can still look at the company’s 5% year-over-year (YOY) revenue growth and 12% YOY earnings growth as they make their decision. And they’ll enjoy one of the most reliable dividends in the sector. The PEP stock dividend currently yields 3.02% and has a $5.06 annual payout per share.

e.l.f. Beauty (ELF)

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Shares of e.l.f. Beauty (NYSE:ELF) are up 2,467% in the last five years. That’s a slightly better gain than Nvidia (NASDAQ:NVDA) had over that same period.

It’s an interesting fact to throw around with your friends. But it doesn’t mean much unless you understand the reason behind that growth. The company has  a market cap of just $11.3 billion – which barely puts it in large-cap territory.

The reason is that e.l.f. Beauty is benefiting from its intentional marketing to Gen-Z consumers. This age group appreciates the sustainable story behind the company’s high-quality but affordably priced skin-care products.

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.

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