The market continues to look for direction as investors are wondering if the economy is heading for a recession. One of the key indicators they're watching is inflation. It's down from the 40-year highs it was at one year ago, but it is still above the Fed's target 2% rate. And rising oil prices make it a near certainty that inflation will be higher – or at the very least stay above the Fed's target – six months from now.
That's negative for stocks but not for all stocks. Certain categories of stocks perform well even when inflation is rising. One of these sectors comes from consumer staples stocks. These companies make products that consumers need (e.g., food, groceries, medicine). More importantly, these companies have pricing power. That means they can pass along higher producer costs they bear to the consumers.
Here are seven consumer staples stocks that are likely to show strong revenue and earnings growth that will likely support a higher stock price.
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- Coca-Cola
- Keurig Dr Pepper
- Colgate-Palmolive
- Kimberly-Clark
- Hershey’s
- Archer-Daniels Midland
- Darling Ingredients
#1 - Coca-Cola (NYSE:KO)
The Coca-Cola Company (NYSE: KO) is an iconic soft drink company that is also known as one of Warren Buffett's favorite stocks. That's not a reason to buy or avoid the stock. However, the stock has elements that show you why it deserves to be on your consumer staples shopping list.
Earnings growth is one of the best predictors of stock price growth. Coca-Cola is forecast to show 7% earnings growth in the next 12 months, and that would support the Coca-Cola analyst ratings on MarketBeat, which is forecasting a 17% increase in the company's share price. To put that in perspective, that's commensurate with the growth in the S&P 500 in the first eight months of 2023.
KO stock also has a reasonable valuation. The 22x forward price-to-earnings (P/E) ratio is in line with the S&P 500. According to Yardeni Research, the average forward P/E for soft drink stocks is 22x. That means you can look at the company's dividend. And Coke is a dividend king that has increased its dividend for 62 consecutive years. It has a current yield of 3.13%.
About Coca-Cola
The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavors; water, sports, coffee, and tea; juice, value-added dairy, and plant-based beverages; and other beverages. It also offers beverage concentrates and syrups, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores.
Read More - Current Price
- $62.55
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $72.50 (15.9% Upside)
#2 - Keurig Dr Pepper (NASDAQ:KDP)
Keurig Dr Pepper, Inc. (NASDAQ: KDP) is another soft drink company that makes this list of the best consumer stocks to buy to manage through inflation. The company's 46 billion market cap is significantly smaller than the 254 billion sported by Coca-Cola. However, KDP stock is down 13% over the last 12 months and looks attractive after this pullback.
Keurig Dr Pepper currently trades at 29x earnings. That's expensive for the sector, but the forward P/E of 18.8x is below the sector average. And the Keurig Dr Pepper analyst ratings on MarketBeat give the stock a 10.4% upside. That upside is not showing up despite the company beating on the top and bottom lines in its second quarter 2023 earnings report.
The stock also pays a respectable dividend with a 2.38% yield and has been growing for two straight years. With earnings expected to grow by 7.37% in the next 12 months, there will likely be more dividend increases to come.
About Keurig Dr Pepper
Keurig Dr Pepper Inc owns, manufactures, and distributors beverages and single serve brewing systems in the United States and internationally. It operates through three segments: U.S. Refreshment Beverages, U.S. Coffee, and International. The U.S. Refreshment Beverages segment manufactures and distributes branded concentrates, syrup, and finished beverages.
Read More - Current Price
- $32.37
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $38.50 (18.9% Upside)
#3 - Colgate-Palmolive (NYSE:CL)
The Colgate-Palmolive Company (NYSE: CL) is known for the products that consumers need every day. That doesn't necessarily mean you should consider the stock, but there are other reasons. However, there are several fundamental reasons as to why you should consider this blue-chip stock.
Colgate-Palmolive continues to show top-line growth. However, in its most recent quarter, that revenue growth is starting to show up in the company's bottom line. And the company is expected to post 8.8% earnings growth over the next 12 months.
That showcases the company's ability to absorb and pass along price increases to consumers, which is what you expect from a blue-chip company. CL stock currently trades at 41x earnings. But the forward P/E is a far more ideal 23x, which is consistent with the consumer staples sector.
Colgate-Palmolive is also another dividend king that makes this list. The company has increased its dividend for 61 consecutive years and currently has a 2.61% yield.
About Colgate-Palmolive
Colgate-Palmolive Company, together with its subsidiaries, manufactures and sells consumer products in the United States and internationally. It operates through two segments: Oral, Personal and Home Care; and Pet Nutrition. The Oral, Personal and Home Care segment offers toothpaste, toothbrushes, mouthwash, bar and liquid hand soaps, shower gels, shampoos, conditioners, deodorants and antiperspirants, skin health products, dishwashing detergents, fabric conditioners, household cleaners, and other related items.
Read More - Current Price
- $92.03
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $105.11 (14.2% Upside)
#4 - Kimberly-Clark (NYSE:KMB)
Sticking with household products that consumers use every day brings us to the next stock on this list, Kimberly-Clark Corporation (NYSE: KMB). In a year when the broader market is up approximately 17%, KMB stock has been an underperformer. However, a quick look at the fundamentals should give value-minded investors a reason to believe this is a consumer stock to buy if inflation is on the rise.
In a similar theme to other stocks on this list, KMB stock trades at around 26x earnings, but its forward P/E is 19.9x, which is very attractive. The company is also expected to show 9% earnings growth in the next 12 months.
The Kimberly-Clark analyst ratings on MarketBeat suggest that now may be a time to reduce your position. However, recent ratings hint at a price target that is significantly higher than the current price.
And even if you're unsure about the direction of the stock, you'll be investing in another Dividend King with a 3.69% yield, a $4.72 annual payout, and has been increasing its payout for 52 years.
About Kimberly-Clark
Kimberly-Clark Corporation, together with its subsidiaries, manufactures and markets personal care and consumer tissue products in the United States. It operates through three segments: Personal Care, Consumer Tissue, and K-C Professional. The company's Personal Care segment offers disposable diapers, training and youth pants, swimpants, baby wipes, feminine and incontinence care products, reusable underwear, and other related products under the Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Sweety, Kotex, U by Kotex, Intimus, Thinx, Poise, Depend, Plenitud, Softex, and other brand names.
Read More - Current Price
- $131.32
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $149.93 (14.2% Upside)
#5 - Hershey’s (NYSE:HSY)
The Hershey Company (NYSE: HSY) makes this list, but I won't pretend that it’s on this list because of its pristine fundamentals. The company has a forward P/E ratio of 21x, which is a little high for the sector.
However, we're entering into the company's sweet spot (pun intended) from a revenue and earnings perspective. The fourth quarter brings Halloween and the holiday season, which are historically strong seasons for the company.
That should allow investors to look at the pullback in HSY stock in 2023 as an opportunity to take a position in a stock that is expected to grow earnings by 7.75%. The Hershey analyst ratings on MarketBeat forecast a 24.3% upside for HSY stock.
And as you get with all the stocks on this list, you get a nice dividend that has been increasing for the last 14 consecutive years, currently offers a 2.27% yield, and has an annual payout of $4.77 per share.
About Hershey
The Hershey Company, together with its subsidiaries, engages in the manufacture and sale of confectionery products and pantry items in the United States and internationally. The company operates through three segments: North America Confectionery, North America Salty Snacks, and International. It offers chocolate and non-chocolate confectionery products; gum and mint refreshment products, including mints, chewing gums, and bubble gums; protein bars; pantry items, such as baking ingredients, toppings, beverages, and sundae syrups; and snack items comprising spreads, bars, snack bites, mixes, popcorn, and pretzels.
Read More - Current Price
- $170.26
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 13 Hold Ratings, 6 Sell Ratings.
- Consensus Price Target
- $185.17 (8.8% Upside)
#6 - Archer-Daniels Midland (NYSE:ADM)
The Archer-Daniels Midland Company (NYSE: ADM) helps provide products and services that are essential to the agricultural industry. This puts it at the beginning of the supply chain, and the stock should have a long runway for growth.
The company has one of the most attractive valuations of any of the consumer stocks on this list. ADM stock trades at a forward P/E ratio of 10x. However, some investors may be concerned about projections for an 11% decline in earnings in the next 12 months. That was evidenced in the company's last earnings report, which showed a YOY dip on the bottom line.
But looking ahead, the company has a forward P/E ratio of just 10x. And the Archer-Daniels Midland analyst ratings on MarketBeat suggest a 23% upside for the stock.
And that lets you focus on the company's dividend, which currently offers a 2.29% yield. Not surprisingly, this is another Dividend King that has increased its dividend for 51 consecutive years.
About Archer-Daniels-Midland
Archer-Daniels-Midland Company engages in the procurement, transportation, storage, processing, and merchandising of agricultural commodities, ingredients, flavors, and solutions in the United States, Switzerland, the Cayman Islands, Brazil, Mexico, Canada, the United Kingdom, and internationally. It operates in three segments: Ag Services and Oilseeds, Carbohydrate Solutions, and Nutrition.
Read More - Current Price
- $50.49
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 14 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $60.62 (20.1% Upside)
#7 - Darling Ingredients (NYSE:DAR)
Darling Ingredients, Inc. (NYSE: DAR) is another company that provides essential products and services for the agricultural industry. It's also looking to expand its renewable diesel production, which is benefiting from subsidies from the U.S. government, which is taking an aggressive stance on climate change. And like ADM, Darling Ingredients is attractively valued with a forward P/E ratio of just 10.5x earnings.
This mid-cap company has shown steady YOY revenue and earnings growth since 2020. And earnings are expected to increase by 6.8% in the next 12 months. This growth is not necessarily reflected in the company's stock price. In the last 12 months, DAR stock is down 24%. However, analysts continue to raise their price targets for DAR stock with current forecasts for a 48.8% upside.
Darling is the only company on this list that doesn't pay dividends. And there may be some concern about the company's total debt of around 4.6 billion as of March 2023. But if you're looking for undervalued consumer staples stocks, DAR stock is a solid choice.
About Darling Ingredients
Darling Ingredients Inc develops, produces, and sells natural ingredients from edible and inedible bio-nutrients in North America, Europe, China, South America, and internationally. The company operates through three segments: Feed Ingredients, Food Ingredients, and Fuel Ingredients. It offers ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, industrial, fuel, bioenergy, and fertilizer industries.
Read More - Current Price
- $33.06
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $53.44 (61.7% Upside)
Now that you have a list of consumer staples to consider, it's a good time to point out what consumer staples are and what they're not. Many of these companies are among the bluest of blue-chip companies. They deliver consistent revenue and, more importantly, earnings. They offer products and services that consumers need every day.
However, these are the definition of "build wealth slowly" stocks. They'll help you sleep easily at night, but they aren't stocks that are designed to grow at a pace that beats the market. When the market is surging, consumer staples stocks will tend to lag behind. However, these stocks often outperform the broader market when the market is in a correction.
The bottom line comes down to this. Consumer staples stocks may have a place in every portfolio, but if you're looking for market-beating growth, you should consider other areas of the market.
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