If you want to follow in the footsteps of investment moguls like Warren Buffett, one key place you should look to invest your money is consumer staples. In fact, according to The Motley Fool, about 14.9% of the billionaire’s holdings are in consumer staples stocks. That includes familiar names such as Coca-Cola, Kraft Heinz, and Procter & Gamble, according to U.S. News & World Report.
Buffett sees that the minimal volatility and well-charted returns make consumer staples hard to ignore. If you’re curious to see for yourself, consider these top stocks.
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Best Consumer Staples Stocks to Buy
Although many consumer staples stocks have a strong track record, in any sector, there are always some stocks that outperform others. The stocks listed below arguably have the best potential to outpace the category.
1. Coca-Cola Co. (NYSE: KO)
Over the years, consumers have become more conscious of what they’re putting into their bodies when they eat and drink. This has led to some concerns for Coca-Cola because the company’s flagship product is a high-sugar soft drink.
Nonetheless, the company’s stock has seen consistent growth, along with increased revenue, earnings, and dividends. When it comes to dividends, the company has increased payments to its investors every year for the last 57 years, according to Investopedia, and that trend isn’t likely to stop.
The reason the company has been so successful, even in the face of health-related headwinds, has to do with its diversified portfolio for consumer staples products. Although the company’s flagship product, the Coca-Cola soft drink, is the most successful soda of all time, it’s not the only trick the company has up its sleeve. Coca-Cola is also behind several healthy-lifestyle and energy drink products, including Powerade, Dasani Water, and vitaminwater.
Generating more than $30 billion dollars in revenue annually and seeing consistent growth in earnings per share, Coca-Cola stock is already a strong investment play. Moreover, recent COVID-19-related declines in the price of the stock may be a discounted opportunity to get in on the strong growth expected in the future.
2. PepsiCo, Inc. (NASDAQ: PEP)
Coca-Cola may control more than 43% of the soft drink market, with Pepsi a pretty distant second with just under a 25% share of the market, according to Statista. Nonetheless, in terms of overall company value, the two are pretty similar.
PepsiCo’s flagship soft drink, Pepsi, has long been a runner-up in the cola wars. In a market worth more than $250 billion annually, second place is nothing to be upset about. That’s especially the case considering PepsiCo’s diverse portfolio of other products across multiple categories.
Coca-Cola is more of a pure-play stock, with a singular focus on the beverage market, likely leading to its leadership position in the space. PepsiCo does well in beverages, even in the healthy beverages space, with products like Pure Leaf, Gatorade, and Tropicana. But the company also sells some of the top brands in food.
PepsiCo is the company behind familiar brands like Quaker, Sabra, and Frito-Lay. These are some of the most popular brands in snack foods and general nutrition, making a massive difference in the company’s market cap.
Throughout the history of PepsiCo, the company has produced consistent and impressive revenue and earnings growth. It has also consistently paid strong dividends since 1963, making it an impressive dividend play. All in all, PepsiCo stock is worth considering.
3. Clorox Co (NYSE: CLX)
Clorox is one of the largest cleaning supply companies in the world. Chances are you have one (or more) of their products under your kitchen sink now.
Founded in 1913, the Clorox brand has become synonymous with bleach and cleaning supplies. It’s the company behind Clorox Bleach, Tilex, Pine-Sol, S.O.S., Green Works, and a long list of other cleaning products.
The company also has a relatively diverse portfolio of products. Although most of these products are in the cleaning space, Clorox has seen success in other sectors with brands like Kingsford, Brita, and Hidden Valley.
Like all other consumer staples stocks on this list, Clorox is known for delivering strong growth in revenue and year-over-year earnings. The company has also consistently paid impressive dividends. All of these factors have led to long-running, relatively consistent growth over the years.
So far in 2020, Clorox has done something consumer staples stocks don’t generally do: It’s seen tremendous gains, climbing from just over $150 per share in January to around $230 per share by July.
The growth is directly attributed to the COVID-19 pandemic. As the coronavirus continues to change the way we live, consumers, businesses, and municipalities are looking for ways to reduce the chance of transmission of the virus. Scientists say that cleanliness and proper hygiene are some of the best ways to do so.
As a result, the cleaning supplies sector as a whole has seen a dramatic increase in demand. At the beginning of the pandemic, it became difficult to find Clorox products on shelves, as the company couldn’t keep up with the massive amount of cleaning products consumers were purchasing.
That supply chain problem has been solved for the most part, but the COVID-19 pandemic is far from over, and demand for Clorox products isn’t likely to slow any time soon. Not to mention there’s a valid argument that, following the pandemic, the virus will be so deep in the minds of consumers that demand for cleaning and hygiene products isn’t going to slow.
As a result, Clorox stock may have plenty more room to climb ahead.
4. Procter & Gamble Co (NYSE: PG)
Procter & Gamble has been around for almost 200 years and has seen incredible success throughout the centuries. Today, the company has 22 well-known brands that each generate more than $1 billion in annual revenue, alongside a long list of lesser-known brands that helped the company generate more than $67 billion in revenue in 2019.
Some of Procter & Gamble’s most recognized brands include Tide, Crest, and Gillette. However, these massive brands only represent a small portion of the company’s lineup in paper products, laundry detergents, diapers, and beauty products.
Procter & Gamble’s share price has already recovered from severe declines caused by the initial wave of COVID-19. After all, consumers aren’t likely to stop cleaning their clothes or brushing their teeth anytime soon. Although economic fears hit hard early on, investors are expecting to see a continuance in the sales and earnings growth the company is known for.
The company is also constantly innovating. Most recently, it developed and launched a safe, naturally derived line of insect repellent products known as Zeno. It also recently launched a line of plant-based cleaning products called Home Made Simple that it expects to be met with strong demand in the face of the COVID-19 pandemic.
As Procter & Gamble continues to innovate, drive compelling sales, and show appreciation to its investors through aggressive dividend payments, the stock becomes harder and harder to ignore.
5. Archer-Daniels-Midland Co (NYSE: ADM)
Archer-Daniels-Midland (ADM) is one of the largest global food processors and commodity traders. The company leads the charge in sections of the market like grain, flour, protein, and edible oils.
Throughout the years, the company has been known for offering compelling dividends and has seen impressive revenue growth. That growth could go into overdrive soon thanks to the recent signing of the USMCA trade agreement between the United States, Mexico, and Canada, which took place on March 13, 2020.
In 2019, ADM had to deal with serious headwinds from outside of the United States. Lower margins and volumes became a reality across the sector. The USMCA treaty is expected to lead to higher prices and larger margins for U.S. producers of food commodities and products.
Much of the company’s growth to date has been the result of an aggressive acquisition strategy. However, in 2020, the company is putting these plans on hold. Ultimately, this will allow ADM to put more effort toward organic growth and improving operating efficiencies.
With a strong history of growth, a position of power in its corner of the commodities sector, a trade agreement that will likely lead to improved margins, and historically impressive dividends, ADM is worth examining closer.
Final Word
Although consumer staple stocks are far from a viable way to get rich quickly, Warren Buffett will tell you they’re a great way to get rich over time. Thanks to their position as producers of staple products ingrained in the consumer’s lifestyle, consumer staples companies are known for increasing revenues and earnings and relatively steady growth in the stock market.
As a result, if you’re looking for buy-and-hold opportunities, consumer staples stocks should make up a large part of your portfolio. It’s important to remember that although this list contains some of the top staple stocks in my opinion, it’s still based on my personal opinion. There are always risks in investing, and investors should always do their own due diligence or speak to a professional investment advisor before making investment decisions.
Do you invest in consumer staples stocks? What are your favorite names in the consumer staples sector?
Disclosure: The author currently has no positions in any stock mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.
