The Consumer Price Index (CPI) increased 9.1% year-over-year in June 2022, marking a new multi-decade high. The Fed’s indication of a 75 basis-point interest in its meeting next week to fight inflation and the possibility of many more hikes this year have increased the odds of the economy tipping into a recession.
According to economists polled by Reuters, the chances of the economy tipping into a recession over the next 12 months have increased to 40%. Therefore, the consumer staples sector could be the ideal investment destination for investors. Inelastic demand helps consumer staples companies perform steadily in any business cycle.
Investors’ interest in this defensive sector is evident from the Vanguard Consumer Staples ETF’s (VDC) 5.6% returns over the past month. With low beta, strong profitability, and impressive dividend payout history, consumer staples stocks General Mills, Inc. (GIS) and Sanderson Farms, Inc. (SAFM) could be excellent additions to your portfolio.
General Mills, Inc. (GIS)
GIS manufactures and markets branded consumer foods, including snacks, ready-to-eat cereal, convenient meals, yogurt, wholesome natural pet food, super-premium ice cream, baking mixes and ingredients, and refrigerated and frozen dough.
It also supplies branded and unbranded food products to the food service and commercial baking industries. The stock has a 0.36 beta.
GIS will pay a $0.54 quarterly cash dividend on October 1, 2022. The stock pays a $2.16 per share dividend annually, translating to a 2.9% yield. The company’s dividend has grown at a 1.4% rate over the past five years. GIS has increased its dividends for two consecutive years.
On June 22, 2022, GIS completed the acquisition of TNT Crust, a manufacturer of high-quality frozen pizza crusts for regional and national pizza chains, foodservice distributors, and retail outlets, and also acquired two manufacturing facilities in Green Bay and one in St. Charles, Missouri.
This acquisition advances GIS’ Accelerate strategy and strengthens its position in the fast-growing away-from-home frozen baked goods category.
For its fiscal 2022 fourth quarter ended May 29, 2022, GIS’s net sales increased 8.1% year-over-year to $4.89 billion. The company’s adjusted gross profit came in at $1.65 billion, indicating a 5.9% year-over-year improvement. Its adjusted operating profit came in at $896.30 million for the quarter, representing a 21.2% year-over-year improvement.
GIS’ adjusted net earnings came in at $681.60 million, up 20.6% from the prior-year period. Its adjusted EPS came in at $1.12, representing a 23.1% rise from the year-ago period. As of May 29, 2022, the company had $569.40 million in cash and cash equivalents.
Analysts expect an EPS estimate of $4 for fiscal 2023 ending May 28, 2023, indicating a rise of 1.5% from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters.
The consensus revenue estimate of $4.11 billion for the same fiscal year represents a 9% year-over-year improvement. Its EPS is expected to grow at a 4.8% rate per annum over the next five years.
GIS’ 27.1% trailing-12-month ROE is 97.9% higher than the 13.7% industry average. The company’s trailing-12-month ROA of 8.7% is 83.8% higher than the industry average of 4.7%. The stock has gained 8.9% year-to-date to close the last trading session at $73.40.
GIS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Quality. Click here to see the additional ratings for GIS’ Value, Growth, Sentiment, Momentum, and Stability. GIS is ranked #17 of 86 stocks in the B-rated Food Makers industry.
Sanderson Farms, Inc. (SAFM)
SAFM is an integrated poultry processing company that produces, markets, and distributes fresh, frozen, and prepared chicken products. It sells ice-packed, chill-packed, bulk-packed, and frozen chicken primarily to retailers, distributors, casual dining operators, and customers in the export markets. It has a 0.56 beta.
SAFM paid a $0.44 quarterly cash dividend on May 17, 2022. The stock pays a $1.76 per share dividend annually, translating to a 0.84% yield. The company’s dividend has grown at a 13.4% rate over the past five years. SAFM has increased its dividends for two consecutive years.
For its fiscal year 2022 second quarter, SAFM’s net sales ended April 30, 2022, increased 35.6% year-over-year to $1.54 billion. The company’s operating income came in at $421.49 million, up 230.1% from the year-ago period.
Its net income came in at $321.19 million, representing a 231.4% rise from the prior-year period. SAFM’s EPS came in at $14.39, indicating a 231.6% year-over-year improvement. As of April 30, 2022, the company had $829.12 million in cash and cash equivalents.
The consensus EPS estimate of $47.73 for fiscal 2022 ending October 31, 2022, indicates a 134.2% year-over-year improvement. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. Analysts expect SAFM’s revenue to be $6.30 billion for the same fiscal year, representing a 31.3% rise from the prior-year period.
SAFM’s 44.1% trailing-12-month ROE is 222.2% higher than the 13.7% industry average. The company’s trailing-12-month ROA margin of 30.5% is 544.1% higher than the industry average of 3%. The stock has gained 9.5% year-to-date to close the last trading session at $209.25.
SAFM’s POWR Ratings reflect its solid prospects. The stock has an overall A grade, which equates to Strong Buy in our proprietary rating system. Additionally, it has an A grade for Growth and Quality and a B for Value.
In addition to the POWR Ratings grades we have just highlighted, one can see SAFM’s Sentiment, Momentum, and Stability ratings here. SAFM is ranked #3 in the Food Makers industry.
GIS shares were trading at $73.10 per share on Thursday afternoon, down $0.30 (-0.41%). Year-to-date, GIS has gained 10.89%, versus a -15.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
2 Consumer Staples Stocks Worth Paying Attention to Right Now StockNews.com
