Notably, the organic sales gain was driven by a mixture of higher volume, price increases, and selling more higher-priced items. Finally, although consumer staples stocks hold up well in recessionary periods, they tend to lag the broader market during boom times. While no stock is completely immune to market volatility, consumer staples stocks tend to decline much less during corrections. At this time of writing, the broad-based S&P 500 index has slipped nearly 7% in the year to date, but the S&P 500 consumer staples sector is only down 4% for the same period. In contrast, the S&P 500 information technology sector has dropped 13%. Consumer staples are the basic goods that people buy to support their everyday lives.
- PG is one of the biggest employers in Cincinnati, Ohio, where it has its headquarters.
- Defensive stocks won’t go up as much as offensive holdings during up markets, but they can provide the necessary protection during down markets.
- Finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions.
- Vanguard, for example, offers VDC, a consumer staples ETF, and a Consumer Staples Index mutual fund.
We use data-driven methodologies to evaluate financial products and companies, so all are measured equally. You can read more about our editorial guidelines and the investing methodology for the ratings below. Finder monitors and updates our site to ensure that what we’re sharing is clear, honest and current. Our information is based on independent research and may differ from what you see from a financial institution or service provider.
Advantages of consumer staples stocks
The company started as a condensed milk company, and milk chocolate was one of its first products. Today, the firm has expanded to produce a gigantic range of different foods and beverages. I wanted to add that many companies study consumer buying behavior to determine which products consumers prefer and why.
You can invest in individual stocks of Consumer Staples companies or purchase shares in a Consumer Staples-focused exchange-traded fund (ETF) through an online brokerage or a financial advisor. Even though they are considered safer and more predictable than other, more volatile sectors, market conditions, company specifics, and other factors can impact returns. Whether we’re in a recession or a boom market, we’ll always need products like shampoo and toilet paper.
A multinational, member-only big box chain, Costco is the fifth largest retailer in the world, according to the National Retail Foundation. The company operates 800 stores worldwide, though stores exist in fewer than 20 countries and almost 70% of its stores are located in the U.S. PEP has owned a number of other brands, many of which it sold off in the 1990s, such as restaurant chains Pizza Hut, Taco Bell and KFC, plus the U.S. rights to Russian distiller Stolichnaya. Today, it still owns several snack and beverage brands, including Gatorade, Lay’s, Doritos, Cheetos, Mountain Dew and Quaker Foods. Walmart is the world’s largest retailer, the world’s largest company by revenue and the largest employer, with over 2.2 million employees as of 2020.
Through the first six months of 2022, it kept the ball rolling by expanding organic revenue growth by 13.3%. Some well-known Consumer Staples companies include Procter & Gamble, The Coca-Cola Company, and Colgate-Palmolive. These companies manufacture goods that people use in their everyday lives. Fidelity’s Guided Portfolio Summary performanceLog In Required
Review current equity sector weights for your portfolio and see how they compare to the market.
To compete on price consumer staples producers must be able to keep their costs down by adopting new technologies and processes, or they must differentiate by introducing innovative products. Comprising nearly 70% of the nation’s gross national product (GNP), consumer spending holds a lot of sway over the economy. Economic growth and decline are typically led by consumer spending, which is cyclical.
Consumer Discretionary Vs. Consumer Staples in 2016
Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. These companies are essential to our daily life and do well even if the economy is waning. Consumer stapes are products that people can’t do without, such as food and personal items. Even the insinuation that they could be unsafe is enough to erode trust in the brand. A decades-long lawsuit would only refresh consumers’ memory of this scandal over and over again with every new development.
This suggests that inflation is a key concern for many consumer staples companies this year. Certain segments of the consumer discretionary sector, especially retailers, are ripe targets for disruption by new e-commerce competitors. Moreover, growing online sales dilutes the power of well-known consumer staples brands. Procter & Gamble is a consumer goods company that makes everything from personal hygiene products to detergents, cleaners and other household products.
2. The Basics of Consumer Staples¶
This sector includes makers and sellers of everyday essential products, such as toothpaste and detergent, food companies, grocery stores, soft drink companies, discount stores, and beauty supplies. Costco (COST), Walmart (WMT), Coca-Cola (KO), Procter & Gamble (PG), Kellogg (K), and Albertsons (ACI) are some of the well-known companies in this sector. While it depends on individual investment consumer staples meaning goals, Consumer Staples are often considered a safer investment, particularly in times of economic uncertainty. Prefer to invest in the consumer staples sector via a ready-made portfolio? Syfe’s Core portfolios hold the XLP ETF as part of their diversified holdings. With Core portfolios, you can start investing from any amount and dollar cost average effectively every month.
Please appreciate that there may be other options available to you than the products, providers or services covered by our service. Additionally, cosmetics companies were hit harder by the COVID-19 pandemic than most consumer staples businesses because social distancing led to a decline in the demand for makeup and fragrances. P&G is currently developing innovative products, including the nontoxic insect repellent Zevo. In 2019, it released a line of plant-based cleaning products called Home Made Simple. After streamlining its business by selling off non-core brands, restructuring, and cutting costs, P&G’s position is as strong as ever. While market timing isn’t the only part of consumer cyclical analysis, buying cyclical stocks means the investor is betting that the market will trend upward indefinitely.
Comprising nearly 70% of the nation’s gross national product, consumer spending holds a lot of sway over the economy. Economic growth and decline are typically led by consumer spending, which is cyclical in nature. However, spending on goods produced and sold by the consumer staples sector tends to be far less cyclical due to the low price elasticity of demand. The demand for consumer staples goods remains fairly constant regardless of the state of the economy. One important factor to monitor when looking at a consumer staples company is its ability to pass on cost increases.
Motley Fool Investing Philosophy
As such, the companies that make these items are said to maintain reliable, steady growth regardless of the economy. Consumer staples are products that are understood to be regularly purchased by the largest majority of consumers. In some cases, a staple is a product considered to be a necessity, such as basic food items.
Since these companies sell goods such as food and cleaning products that consumers rely on regardless of the state of the economy, they tend to generate solid profits even in weak economies. Consumer Staples, also known as consumer defensive stocks, refer to products that are essential for everyday use. These products include items such as food, beverages, household goods, and hygiene products.
Standard & Poor’s and MSCI developed a widely used industry classification system called the Global Industry Classification Standard — GICS — which divides all companies into 10 major economic sectors. These market sectors are often used as the basis for sector-focused exchange-traded funds for both U.S. and international stocks. Besides consumer discretionary and consumer staples, the other sectors are energy, materials, industrials, health care, financials, information technology, telecommunications services and utilities. A stock will be classified into one of the these sectors and only one sector. Because these stocks tend to perform in a counter way to consumer discretionary stocks in market recessions, they can help bring balance to a portfolio. An example of this phenomenon is seen in the volatile returns of consumer discretionary stocks during most of 2020 and 2021.
For example, in an Asian community rice and vegetables are considered staples. After many years in the teleconferencing industry, Michael decided to embrace his passion for
trivia, research, and writing by becoming a full-time freelance writer. Malcolm’s other interests include collecting vinyl records, minor
league baseball, and cycling. If a brand is a referral partner, we’re paid when you click or tap through to, open an account with or provide your contact information to the provider.
Often products that are intended to last only a short time, staples tend to be items that must be purchased repeatedly in order to keep up with the level of consumption among buyers of the products. Generally, consumer staples will be available in a wide range of brands, sizes, and types, providing the average consumer with many options on how to satisfy the particular desire for products of this nature. Consumer staples are considered to be non-cyclical, meaning that they are always in demand, year-round, no matter how well the economy is—or is not—performing. Also, people tend to demand consumer staples at a relatively constant level, regardless of their price. That said, recent efforts in China to contain the spread of COVID-19 have led the company to reduce its fiscal 2022 guidance.
What It Means for Individual Investors
Consumer staple company stocks are noncyclical because they produce or sell goods that are always in demand. Characterized by steady if unspectacular growth, the consumer staple sector is a haven in for investors in recessionary times. Consumer staples stocks can be a good option for investors seeking consistent growth, solid dividends, and low volatility.
Consumer staples stocks tend to pay solid dividends and keep paying them over the long term. In fact, they are well represented among the Dividend Aristocrats—firms that have increased their dividends annually for at least 25 consecutive years. Since then, KO has grown into a behemoth in the beverage industry and has spurred massive growth in the Atlanta region by investing incredible sums back into the community. Among other achievements, the company pioneered vertical integration by buying out its early bottlers, minting a number of millionaires in the process. Our editors are committed to bringing you unbiased ratings and information.