President Joe Biden has stated that a “slight recession” is possible, but he does not anticipate it. However, the Fed’s aggressive rate hikes have led economists to believe that a U.S. recession is likely in the coming months.
Moreover, the International Monetary Fund (IMF) has slashed its global growth estimates and believes there is a growing risk of a global recession as major central banks fight persistent inflation.
Inflation rose 8.2% in September from a year ago, still hovering near the highest levels since the early 1980s. The CPI data is increasing the chances of a fourth consecutive 75-basis-point hike in November.
Consumer staples or essential goods stay in demand irrespective of economic conditions. Hence, fundamentally strong consumer staple stocks The Coca-Cola Company (KO) and Pilgrim’s Pride Corporation (PPC) might be solid buys now.
The Coca-Cola Company (KO)
KO is a popular beverage company that manufactures, markets, and sells various nonalcoholic beverages worldwide. The company offers sparkling soft drinks, flavored and enhanced water, sports drinks, juice, dairy, plant-based beverages, and energy drinks.
On September 29, KO and Molson Coors Beverage Company (TAP) entered an exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails inspired by the bright and refreshing taste of tequila and vodka-based beverages. The new launch might bolster the company’s revenue stream.
On July 21, KO declared a quarterly dividend of 44 cents per common share, which was payable to shareholders on October 3. This reflects on the cash generation ability of the company.
KO’s net operating revenue increased 11.8% year-over-year to $11.33 billion in the second quarter that ended July 1. Its non-GAAP gross profit grew 7.2% from the year-ago value to $6.67 billion, while its non-GAAP net income improved 4.4% year-over-year to $3.06 billion. The company’s non-GAAP net earnings per common share increased 2.9% from its year-ago value to $0.70.
The consensus EPS estimate of $2.46 for the fiscal year ending December 2022 indicates a 5.9% improvement year-over-year. The consensus revenue estimate of $42.09 billion represents 8.9% growth from the prior year. On top of it, KO has surpassed EPS estimates in all four trailing quarters, which is impressive.
KO’s shares have gained 2.5% over the past five days to close the last trading session at $55.87.
KO’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
KO is rated a B in Stability, Sentiment, and Quality. Within the A–rated Beverages industry, it is ranked #16 out of 34 stocks. To see additional POWR Ratings for Growth, Value, and Momentum for KO, click here.
Pilgrim’s Pride Corporation (PPC)
PPC produces, processes, markets, and distributes fresh, frozen, and value-added chicken and pork products worldwide to retailers, distributors, and food service operators. The company offers its products under several brands.
On September 15, PPC announced that it was soliciting consent from the holders of each of its 4.250% sustainability-linked senior notes due 2031 and 3.500% senior notes due 2032, each issued by PPC to certain proposed amendments as set forth to the indentures governing each series of notes.
In the second quarter that ended June 26, 2022, PPC’s net sales increased 27.3% year-over-year to $4.63 billion. Its adjusted EBITDA rose 67.7% from its prior-year quarter to $623.30 million. The company’s EPS grew 320.6% year-over-year to $1.50.
Analysts expect PPC’s revenue to increase 17.8% year-over-year to $17.41 billion for the fiscal year ending December 2022. The company’s EPS is expected to grow 75.7% year-over-year to $4.01 for the same quarter. Additionally, PPC has surpassed its EPS estimates in three of the trailing four quarters.
PPC’s stock has gained 1.3% intraday to close its last trading session at $21.61.
PPC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our rating system. The stock also has an A grade for Growth and a B for Stability and Quality. It is ranked #7 in the 86-stock Food Makers industry.
Beyond what we’ve stated above, we have also given PPC grades for Value, Sentiment, and Momentum. Get all PPC ratings here.
KO shares were unchanged in after-hours trading Friday. Year-to-date, KO has declined -5.07%, versus a -23.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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