The stock market could experience a correction soon due to a resurgence of COVID-19 cases in the United States with the rapid spread of the Delta variant. However, many analysts expect a market correction of 10% to 15% will represent a “significant opportunity” to invest in quality stocks.
Amid the volatility concerns, consumer staples stocks could be good bets considering the inelastic demand for their companies’ products. The S&P 500 Consumer Staples Sector Index has gained 14.1% over the past year and 5.4% year-to-date. Companies operating in consumer staples should grow substantially amid the potential market slowdown because consumers tend to panic and purchase such items in bulk quantities.
Given this backdrop, we think leading consumer staples stocks PepsiCo, Inc. (PEP), Costco Wholesale Corporation (COST), Altria Group, Inc. (MO), and Sysco Corporation (SYY) should be good additions to one’s portfolio.
PepsiCo, Inc. (PEP)
PEP is a food and beverage company that operates in more than 200 countries. The Harrison, N.Y.-based company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand and China Region.
On July 1, PEP announced its plan to expand its food and beverage portfolio in the European Union member states and committed to accelerating its shift to a healthier snacks’ portfolio. As health consciousness is rising among consumers, an enhanced portfolio of healthier products should be widely demanded, given its worldwide market reach.
On June 24, Fritos®, one of the flagship brands from PepsiCo’s Frito-Lay division, collaborated with Papa Murphy’s®, the largest Take ‘n’ Bake pizza brand in the nation, to introduce a new limited-edition pizza. This collaborative venture by the two leading brands should allow PEP to generate significant revenues.
PEP’s net revenues increased 20.5% year-over-year to $19.22 billion in its fiscal second quarter ended June 12. Its operating profit grew 34.9% from its year-ago value to $3.13 billion. PEP’s net income was $2.37 billion, indicating a 43.1% rise year-over-year. The company’s EPS increased 44.1% year-over-year to $1.70.
The Street expects PEP’s revenues to increase 6.5% year-over-year to $19.26 billion in its fiscal third quarter, ending September 2021. A $1.75 consensus EPS estimate for the current quarter indicates a 5.4% rise from the same period last year. PEP also has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters.
Shares of PEP have gained 14.4% over the past six months. The stock gained 14.7% over the past year.
PEP has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PEP also has a B grade for Sentiment and Quality. Among the 37 stocks in the Beverages industry, it is ranked #7.
To see additional POWR ratings for Growth, Stability, Momentum, and Value, click here.
Costco Wholesale Corporation (COST)
COST operates membership warehouses in the United States and other countries. The Issaquah, Wash.-based company provides branded and private-label products in a range of merchandise categories. It also offers dry and packaged foods, groceries, appliances, and electronics. COST maintains an online presence too. The company had 809 warehouses worldwide as of April 22.
On July 13, COST declared a $0.79 per share quarterly dividend on its common stock, payable August 13, 2021.
On July 8, it reported $18.92 billion in net sales for the five weeks ended July 4, 2021, indicating an increase of 16.9% versus the same period last year. This improvement in net sales demonstrates the company’s impressive performance and expanding customer base.
COST’s revenue increased 21.5% year-over-year to $45.28 billion in its fiscal third quarter, ended May 9. Its operating income grew 41.1% from its year-ago value to $1.66 billion, while its net income improved 45.6% year-over-year to $1.22 billion. The company’s EPS increased 45.5% year-over-year to $2.75.
Analysts expect COST’s revenues to increase 11.1% year-over-year to $59.29 billion in the current quarter, ending August 2021. A $3.41 consensus EPS estimate for the current quarter indicates a 12.2% rise from the same period last year. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of COST have gained 29.5% over the past year and 19.1% over the past six months.
COST has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In addition, the stock has a B grade for Sentiment, Quality, and Stability. COST is ranked #13 among the 40 stocks in the A-rated Grocery/Big Box Retailers industry.
To see additional COST ratings for Value, Growth, and Momentum, click here.
Altria Group, Inc. (MO)
Richmond, Va.-based MO manufactures and sells cigarettes, oral tobacco products, and wine. The company sells its tobacco products primarily to wholesalers, including distributors, and large retail organizations, such as chain stores.
MO’s gross profit increased 13.9% year-over-year to $3.27 billion in its fiscal first quarter ended March 31. Its operating income grew 15.2% from its year-ago value to $2.69 billion. Its cash and cash equivalents balance rose 16.8% from the prior-year quarter to $5.85 billion over this period.
A $21.19 billion consensus revenue estimate for the current year indicates a 1.7% increase year-over-year. The Street expects the company’s EPS to rise 5.3% from the prior year to $4.59 in the current year. MO has an impressive earnings surprise history also; it beat the consensus EPS estimates in three out of the trailing four quarters.
MO has gained 14.3% over the past six months to close yesterday’s trading session at $47.62. The stock has gained 16.6% year-to-date.
According to our proprietary POWR Ratings system, MO has an A grade for Quality and Momentum. Of the 11 stocks in the A-rated Tobacco industry, MO is ranked #8.
Click here to view additional MO ratings for Growth, Value, Sentiment, and Stability.
Sysco Corporation (SYY)
SYY markets and distributes a range of food and related products primarily to the foodservice or food-away-from-home industry. The company operates through three segments: U.S. Foodservice Operations; International Foodservice Operations; SYGMA and Other. SSY is based in Houston, Tex.
On July 27, SYY partnered with SAVRpak to leverage SAVRpak’s patented food preservation technology. The agreement should enable SYY to add SAVRpak “freshness packs” to its cutting-edge solutions platform and enhance customer experience by ensuring fresh and crisp meals after transit.
On May 20, SYY announced an agreement to acquire Greco and Sons, a leading independent Italian specialty distributor. This addition to SYY’s portfolio of specialty companies should enable SYY to serve Italian-specialty-food-focused customers better and facilitate the expansion of its capabilities to new geographies over time.
SYY’s operating income increased 291.4% year-over-year to $235.92 million in its fiscal third quarter, ended March 27. Its net earnings grew 2,797.2% from its year-ago value to $88.93 million. The company’s EPS increased 1,800% year-over-year to $0.17. And its cash and cash equivalents balance was up 115.6% from the prior-year quarter to $4.93 billion over this period.
A $60.46 billion consensus revenue estimate for the next year indicates a 21.8% improvement from the current year. Analysts expect the company’s EPS to come in at $3.32 in the next year, indicating a 151.5% rise year-over-year. Also, SYY surpassed the Street’s EPS estimates in three of the trailing four quarters.
SYY has gained 36.3% over the past year to close yesterday’s trading session at $73.65.
SYY has an overall A rating, which equates to Strong Buy in our proprietary rating system. In addition, SYY has a B grade for Growth, Value, Quality, and Momentum. It is ranked #9 of 80 stocks in the B-rated Food Makers industry.
Beyond what we’ve stated above, we have also rated SYY for Sentiment and Stability. Click here to view all SYY ratings.
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PEP shares were trading at $156.74 per share on Thursday afternoon, up $0.25 (+0.16%). Year-to-date, PEP has gained 7.31%, versus a 18.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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