12 Best Consumer Staples Stocks for the Rest of 2021
Consumer staples stocks have been on the rise in recent months. Several catalysts on the horizon could keep the momentum going through year's end.
Consumer staples stocks had a slow start to the year, but have been gaining momentum in recent months, thanks in part to a third round of stimulus checks issued to Americans in March.
According to S&P Dow Jones Indices, the S&P 500 Consumer Staples Index is up 12.7% since its March lows. And while that's certainly slower growth than what the sector experienced last year during the height of the pandemic, there are tailwinds on the horizon – including back-to-school shopping and direct child tax credit payments – that could keep the momentum going for consumer staples stocks.
Not to mention, there's always a place in a well-constructed stock portfolio for a few defensive plays that are less cyclical in nature.
With that in mind, here are 12 consumer staples stocks to watch for the rest of 2021. The names on this list have either performed well in 2021 and appear poised to continue to do so over the back half of the year, or have underperformed year-to-date but look ready to take off.
Data is as of July 14. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Analysts' opinions courtesy of S&P Global Market Intelligence.
Target
- Market value: $125.5 billion
- Dividend yield: 1.4%
- Analysts' opinion: 16 Strong Buy, 6 Buy, 6 Hold, 0 Sell, 1 Strong Sell
It's hard to have a list of the best consumer staples stocks and not include Target (TGT, $253.63).
There is no question that TGT has been on an extended run since CEO Brian Cornell took the helm in August 2014. The former head of PepsiCo's (PEP) largest division – PepsiCo Americas Foods – was hired to return the retailer to its former glory while also building the company's omnichannel retail platform, and his success on both fronts has rewarded shareholders handsomely.
Over the past five years, Target's annualized total return is 29.3%, easily outpacing the 17.4% average annual return for the entire U.S. market over that same time frame.
Cornell was 55 when he was brought onboard at Target, and he is entering his eighth year as CEO well into his 60s. At some point, investors can expect a transition of power.
In the meantime, it looks as though Target will continue to rack up significant growth as Cornell fine-tunes the company's business strategy to capture even more of the American consumers' pocketbooks.
"This is a company that seems to be firing on all cylinders and recently expressed their confidence in future earnings growth by raising the dividend 32%. They had a standout [first] quarter," Nancy Tengler, chief investment officer at Laffer Tengler Investments, told CNBC's "Trading Nation" in late June.
As Tengler reminded CNBC viewers, Target has a penetration rate higher than almost any retailer. According to Tengler, 94% of its stores are within 60 minutes of an American consumer.
Over the trailing 12 months, Target had free cash flow (FCF) of $7.94 billion. That's an attractive FCF yield of 6.4%.
Estée Lauder
- Market value: $118.4 billion
- Dividend yield: 0.7%
- Analysts' opinion: 14 Strong Buy, 6 Buy, 6 Hold, 1 Sell, 0 Strong Sell
Good companies are constantly changing. Estée Lauder (EL, $326.56) is no exception despite continuing to deliver strong global results.
In late June, the head of the cosmetic giant's North American group sent a memo to staff suggesting that the changes it would be making include employee layoffs.
"As we evolve our organization to reflect our new reality, there will be some talent impacts in certain areas of the business. While difficult, these decisions are necessary to effectively pivot to new market dynamics and lead our business into the future," North American Group President Chris Good wrote in the memo to staff.
Estée Lauder's business pivoted during COVID-19, and it expects that the changes that took place during the pandemic will carry on after the pandemic is over.
EL is certainly thriving. It expects fiscal 2021 to be a record year for sales. It estimates its sales this year will be approximately $16 billion, considerably higher than the $14.3 billion in sales the company saw in 2020. Its adjusted operating margin will also be 18%, the highest it's been in the past five years.
In its most recent quarter ended March 31, the company's makeup sales took a hit, sliding 13%, excluding currency, during the three-month period. However, its skincare business – its largest segment accounting for 58% of sales – saw revenues jump 28% during the fiscal third quarter, with operating income up 92%.
Overall, sales increased 13% during EL's fiscal third quarter to $3.9 billion, with operating income of $616 million, 465% higher than the same period a year ago.
"Impressively, we are investing in many compelling long-term growth drivers, including end-to-end innovation with a new center in Shanghai, state of the art manufacturing in Asia/Pacific, global online and consumer analytics," stated Estée Lauder CEO Fabrizio Freda in the company's Q3 2021 press release.
British American Tobacco
- Market value: $89.5 billion
- Dividend yield: 7.7%
- Analysts' opinion: 4 Strong Buy, 0 Buy, 0 Hold, 0 Sell, 0 Strong Sell
Tobacco companies like British American Tobacco (BTI, $39.01) are working to reduce the health impact of their products to persuade environmental, social and governance (ESG) investors that they're not so lethal.
In a June presentation at the Deutsche Bank Global Consumer Conference, BTI's Chief Marketing Officer Kingsley Wheaton discussed the company's strategy in the years ahead.
"Our purpose, A Better Tomorrow, is 'to reduce the health impact of our business.' We want to encourage smokers who would otherwise continue to smoke, to switch completely to scientifically-substantiated reduced risk alternatives," Wheaton stated.
"Given the health impact of cigarettes, that is the greatest contribution that we can make to society. And, in so doing, it will drive long-term, sustainable growth of our business. So, as we win, society wins."
That might sound like wishful thinking, but BTI is the only tobacco stock in the Dow Jones Sustainability Index. Its goals include generating 5 billion British pounds ($6.9 billion) in annual "New Category" revenue by 2025 and attracting 50 million consumers of non-combustible products by 2030.
As part of this move into new categories, British American Tobacco in March entered into a research and development collaboration with OrganiGram, a Canada-based cannabis producer. As part of the partnership, BTI acquired 19.9% of OrganiGram for $175 million.
How far has British American Tobacco gotten in its strategy?
It has approximately 15 million customers buying its vaping devices and using its heated tobacco and oral nicotine pouches. This compares to around 140 million cigarette smokers.
It's got a long way to go, but it's on the right path – and it's certainly one of the best consumer staples stocks to watch going forward.
Sysco
- Market value: $37.5 billion
- Dividend yield: 2.6%
- Analysts' opinion: 2 Strong Buy, 3 Buy, 8 Hold, 1 Sell, 0 Strong Sell
Back in August 2015, activist investor Nelson Peltz acquired 7% of Sysco (SYY, $73.22) to become the foodservice distributor's largest shareholder. Peltz paid roughly $1.6 billion for his 42 million shares. Today, those shares would be worth approximately $3.1 billion.
At the time, Peltz felt the company's margins could be better. The billionaire investor also felt it could return more capital to shareholders through buybacks and dividends. Peltz is still one of Sysco's largest shareholders, although the number of shares held has dropped to 20.6 million.
Sysco generates 62% of its sales from restaurants. As a result, COVID-19 did a number on its business. However, despite the challenges it faced, it has a 16% market share in the U.S. and serves approximately half the country's independent restaurants.
Over the past year, it has picked up business from restaurants, large and small, adding $1.8 billion of net new business with national brands such as Panera Bread and Wendy's (WEN) and more than 13,000 local customers.
SYY has created five strategic pillars of growth – future horizons, digital, products and solutions, supply chains and customer teams – that it believes will help it grow 1.5 times faster than its peers through the end of fiscal 2024.
Additionally, Sysco announced some M&A news earlier this year, saying it would buy Greco and Sons. This is a leading independent Italian specialty distributor with $800 million in annual revenue generated from 10 distribution centers across the U.S. Greco and Sons serves more than 8,000 customers.
Sysco is still recovering. In its fiscal third quarter ended March 27, the company's sales declined 13.7% to $11.8 billion, while its non-GAAP (generally accepted accounting principles) operating profit fell 32% to $256.2 million.
However, for the first 39 weeks of its fiscal 2021, Sysco's free cash flow arrived at $1.2 billion, up $760.1 million from the year prior. It's a sign profitable business is coming back – and SYY could be one of the best consumer staples stocks going forward.
Hershey
- Market value: $36.8 billion
- Dividend yield: 1.8%
- Analysts' opinion: 3 Strong Buy, 5 Buy, 10 Hold, 1 Sell, 0 Strong Sell
As part of its trend toward healthier products, Hershey (HSY, $177.57) completed its acquisition of Lily's on June 25 for $425 million. Lily's was founded by Cynthia Tice in 2010 as a way for her to quit sugar but still enjoy a sweet treat from time to time. The company's products have no sugar added.
When HSY announced the acquisition in May, it said that Lily's would be a welcome addition to its better-for-you (BFY) portfolio.
"Cynthia (Tice) had the vision that consumers wanted a better-for-you option in confections and today 80% of adults want to cut back on their sugar intake," Lily's CEO Jane Miller stated in May, as reported by CStoreDecisions.com. "By joining the Hershey's family of brands, Lily's will become a platform confection brand making BFY options easily accessible to all consumers."
In June, HSY discussed its growth plans. The company's research has found that one in four online purchases happened following a visit to a physical store selling Hershey products.
Additionally, it has found that 55%-70% of customers, whether online or in-store, purchase additional items that weren't on their original shopping list, providing plenty of growth opportunities for the consumer staples stock.
In the first quarter ended April 4, Hershey sales hit $2.3 billion, 12.7% higher than a year earlier. As a result, the company's adjusted earnings increased 17.8% to $1.92 per share.
At the midpoint of its 2021 guidance, Hershey estimates 5% sales growth, 200 basis points (a basis point is one-one hundredth of a percentage point) higher than its previous guidance. It also expects adjusted earnings per share (EPS) of $6.86 at the midpoint, 9% higher than in 2020.
Hershey currently has a price/cash flow (P/CF) ratio of 18x, slightly less than its five-year average of 18.6x.
Brown-Forman
- Market value: $34.2 billion
- Dividend yield: 1.0%
- Analysts' opinion: 1 Strong Buy, 0 Buy, 10 Hold, 2 Sell, 4 Strong Sell
Brown-Forman (BF.B, $72.78), the maker of Jack Daniel's, had a reasonably strong year in fiscal 2021, which ended April 30. Sales grew by 6% to $3.5 billion, while operating profit increased 7% to $1.2 billion.
Plus, BF.B generated free cash flow of $755 million in 2021, 23.6% higher than a year earlier. A big reason for this was its performance in the U.S., where it generates approximately half its overall sales. It had underlying net sales of 10% in the U.S. in 2021, its best year of domestic growth in over 20 years.
Key contributors to this growth included the company's premium bourbon, tequila and Jack Daniel's ready-to-drink (RTD) line, which offset poor sales in Travel Retail – an area that got hit by COVID-19. According to BF.B's fiscal fourth-quarter 2021 conference call transcript, JD RTD accounted for 12 million cases across all its markets.
Thanks to the premiumization of alcohol, the company's high-end brands, such as Woodford Reserve, Old Forester, Benriach and Herradura, continue to grow by double digits. That's unlikely to change in the near term.
Despite higher input costs, which lowered its gross margin by 270 basis points, Brown-Forman still increased its operating margin in 2021 to 33.7%, 130 basis points higher than a year earlier.
In fiscal 2022, Brown-Forman expects to grow the top and bottom lines by 4%-6% on a year-over-year basis. You're likely not going to get rich owning Brown-Forman, but as far as consumer staples stocks go, it's an excellent defensive play over the long haul.
Archer-Daniels-Midland
- Market value: $32.8 billion
- Dividend yield: 2.5%
- Analysts' opinion: 8 Strong Buy, 3 Buy, 3 Hold, 1 Sell, 0 Strong Sell
Archer-Daniels-Midland (ADM, $58.78) is one of the world's leading agricultural processors, with approximately 800 facilities served by more than 39,100 employees in 200 countries. A public company since 1924, it has paid dividends for 89 consecutive years and is a member of the Dividend Aristocrats.
The company is currently transforming the way it does business to deliver the best possible customer experience at the lowest cost. Initially, it intended to find $1.2 billion in annual cost savings by the end of 2020, but instead, it found $1.3 billion.
As a result of its cost-cutting measures, ADM generated adjusted operating profits of $2.1 billion in fiscal 2020, up 8.9% from the year prior.
In the first quarter, ADM's adjusted operating profit increased 86% to $1.2 billion. This was due to significant contributions from all three of its operating segments, including an 84% year-over-year improvement in its Ag Services and Oilseeds business, which accounts for 65% of overall profits.
ADM recently found itself in hot water over a South Carolina grain elevator it sold to former Agriculture Secretary Sonny Perdue's company AGrowStar. The sale happened weeks before Perdue was appointed to the position by former President Donald Trump.
AGrowStar paid $250,000 for the grain elevator, while ADM bought it for $5.5 million in 2010. Some have questioned the timing of the discounted sale. ADM argued that the grain elevator was an underperforming asset making it difficult to sell for a better price. It's most likely water under the bridge.
ADM's business is improving, and that shows in the stock's performance over the past year. Specifically, the shares are up more than 46% in the last 52 weeks. Moreover, investors interested in consumer staples stocks can expect the good times to continue for this one into 2022.
Coca-Cola Europacific Partners
- Market value: $28.5 billion
- Dividend yield: 2.7%
- Analysts' opinion: 7 Strong Buy, 3 Buy, 3 Hold, 0 Sell, 0 Strong Sell
U.K.-based Coca-Cola Europacific Partners (CCEP, $62.30) has a history with Coca-Cola (KO) that goes back to 1904. Today, CCEP is the largest bottler of Coke globally with annual revenue of 13.5 billion Euros ($16.0 billion) and a combined market of more than 600 million consumers across 29 countries.
In May, Coca-Cola European Partners merged with Australian-based Coca-Cola Amatil to form CCEP. The acquisition of Coca-Cola Amatil accelerates the company's revenue growth by 25%, while also giving CCEP access to the lucrative Australian and New Zealand markets.
On a pro forma basis, the two companies sold more than 3 billion cases of product in 2020, 60% of which was Coca-Cola. Energy drinks and other flavored drinks made up another 25% of shipments. By 2025, CCEP expects its total addressable market to grow to 138 billion Euros ($163 billion).
Coca-Cola European Partners itself was the result of three KO partners coming together in 2016.
The company is making strides on the ESG front, too, and expects all of its vehicles to be electric or low-emission by 2030. Coca-Cola Europacific Partners' electric vehicles (EVs) currently account for 5% of the more than 8,000 light vehicles in its fleet.
CCEP is one of the more expensive consumer staples stocks on this list at the moment. It has a P/CF ratio of 16.1x, which is 42% higher than its five-year average. However, the company's trailing 12-month free cash flow is $1.1 billion for a FCF yield of 3.9%.
Given the company's growth potential, its FCF yield is more than reasonable.
Boston Beer
- Market value: $11.3 billion
- Dividend yield: N/A
- Analysts' opinion: 4 Strong Buy, 4 Buy, 7 Hold, 0 Sell, 1 Strong Sell
Boston Beer (SAM, $919.55) has come down a lot since hitting its 52-week high of $1,349.98 in late April. This provides investors with an excellent opportunity to buy the maker of Samuel Adams and Dogfish Head beer, Truly Hard Seltzer, Angry Orchard Cider and Twisted Tea Hard Iced Tea.
Credit Suisse analysts recently upgraded SAM stock to Outperform from Neutral (the equivalents of Buy and Hold, respectively). They also increased the 12-month target price for the shares by 14% to $1,490.
One reason for the upgrade is that the company's Truly Hard Seltzer brand is gaining ground on White Claw, the industry leader, and seltzer growth is expected to account for 10% of the overall alcohol beverage market by 2025. This, along with a reopening economy, will drive annual revenue and earnings increases for SAM of 23% and 20%, respectively, over the next three years, the analysts say.
There is no doubt that business is going well.
In late April, Boston Beer reported Q1 2021 results that included a 65% increase in sales to $545.1 million, while its net income increased 260% over last year to $65.6 million.
"The Truly brand has now reached a market share of over 28%, accounting for approximately 40% of all growth cases in the hard seltzer category, which is two times greater than the next largest growth brand," the company's Q1 2021 press release stated.
SAM expects shipments to increase between 40% and 50% for 2021, with gross margins as high as 47%. As a result, investors seeking out growth in consumer staples stocks can expect earnings for this one to be at or near record levels in 2021.
Boston Beer's price/earnings growth (PEG ratio) is currently 1.4x, almost half its five-year average of 2.6x.
Casey's General Stores
- Market value: $7.2 billion
- Dividend yield: 0.7%
- Analysts' opinion: 5 Strong Buy, 0 Buy, 7 Hold, 1 Sell, 0 Strong Sell
In 2021, Casey's General Stores (CASY, $193.65) acquired 49 properties in the Oklahoma market from Canadian convenience store operator Alimentation Couche-Tard for $39 million. The sale was part of Couche-Tard's strategic review, which will include it selling an additional 306 North American locations over the next year.
Interestingly, Couche-Tard tried to buy Casey's in 2010 but ended up walking away after CASY shareholders failed to elect its slate of directors. Couche-Tard offered $38.50 a share. The shares have increased roughly fivefold or 16% compounded annually in the 11 years since.
Casey's reported its fiscal fourth-quarter results in June. Fiscal 2021 included a slight drop in revenue to $8.7 billion from $9.2 billion in 2020. However, its earnings per share increased 18% year-over-year to $8.38.
The operator of convenience stores opened 36 net new locations in 2021. It expects to add approximately 200 stores in fiscal 2022.
On July 8, the company announced the appointment of BJ's Restaurants (BJRI) CEO Greg Trojan to its board. Earlier in Trojan's career, he ran California Pizza Kitchen when PepsiCo owned it. In addition to being the third-largest convenience store chain in the U.S., Casey's is also the fifth-largest pizza chain.
Casey's finished fiscal 2021 with free cash flow of $336 million, up significantly from $78 million a year earlier.
Nomad Foods
- Market value: $4.9 billion
- Dividend yield: N/A
- Analysts' opinion: 6 Strong Buy, 4 Buy, 0 Hold, 0 Sell, 0 Strong Sell
For those unfamiliar with Nomad Foods (NOMD, $27.58), it is a U.K.-based frozen foods company whose brands include Birds Eye, Findus and Iglo. It sells its products in 13 countries across Western Europe.
In NOMD's November 2020 Investor Day presentation, CEO Stefan Descheemaeker laid out the company's four key messages, which include plans to generate adjusted free cash flow of 1.5 billion Euros ($1.8 billion) over the next five years.
Nomad generates 100% of its revenue from frozen foods. Fish is the largest category, accounting for 40% of its sales. Other significant categories include vegetables (19%) and potatoes (10%).
NOMD is the third-largest branded frozen food company in the world, behind only ConAgra (CAG) and Nestle (NSRGY). It is by far the biggest in Western Europe. Nomad holds a strong market share position in Europe for both peas (56%) and fish fingers (64%).
As for the plant-based foods movement, the company's Green Cuisine brand is developing a strong following. In the U.K., Green Cuisine has captured 8% of the market share for plant-based frozen foods.
"We've publicly said for Green Cuisine, we want to reach £100m very quickly," Nomad Foods' U.K. Managing Director Wayne Hudson told The Grocer in June.
In May, NOMD reported strong first-quarter results that included organic revenue growth of 1.8% and a 42% increase in adjusted EPS. The company expects to deliver a fifth consecutive year of organic revenue (3%-5%) and adjusted earnings per share (11%-15%) growth in 2021.
Graham Holdings
- Market value: $3.3 billion
- Dividend yield: 0.9%
- Analysts' opinion: 1 Strong Buy, 0 Buy, 0 Hold, 0 Sell, 0 Strong Sell
It's been almost eight years since The Washington Post Company was renamed Graham Holdings (GHC, $655.50) to reflect the sale of the iconic newspaper to billionaire Jeff Bezos in 2013.
How has it performed? Up until the past year, not very well.
However, over the past 52 weeks, it's come alive, generating a total return of 91.4%, and is up 22.9% in 2021. Of course, these returns don't include Cable ONE (CABO). The telecommunications firm was spun off in July 2015 into its own publicly traded company. As a result, Graham Holdings stakeholders received one new share in Cable One for every share held of the parent.
Graham Holdings' business interests include Kaplan, the test preparation people, Graham Media, a collection of U.S. television stations, several industrial manufacturers and a home healthcare business, among other ventures.
Unfortunately, if you're looking for pearls of wisdom about the holding company, you're out of luck. Only one analyst covers the stock, though they rate GHC a Strong Buy with a target price of $780, indicating expected upside of 19% over the next 12 months or so.
Graham Holdings' most recent addition to the company is Leaf Group, a business that develops online brands built around lifestyle categories, including fitness and wellness. The company paid $323 million for Leaf, and the transaction closed on June 14.
In the first quarter ended March 31, Graham Holdings' revenues fell by 2.7% year-over-year to $712.5 million. However, operating income jumped 319% to $33.8 million.
If you like owning consumer staples stocks with lots of moving parts, GHC could be for you.
