Consumer staple stocks are resilient during economic downturns due to consistent demand. These stocks provide a defensive investment strategy and act as a hedge against inflation, reducing portfolio volatility. Therefore, investors could consider buying consumer staple stocks: Altria Group, Inc. (MO), Colgate-Palmolive Company (CL), and Target Corporation (TGT).
Consumer preferences and buying behavior have significantly changed in recent years, influenced by demographic shifts, digital disruption, and evolving lifestyles. Millennials and Gen Z now represent a substantial segment of consumers.
They typically prioritize experiences over material goods, shop across multiple channels, and expect highly personalized service. Therefore, the global consumer product and retail market is expected to grow at a CAGR of 7.2% by 2030.
Inflation finally shows signs of cooling, as the June Consumer Price Index (CPI) declined 0.1% from May. The monthly inflation rate dipped for the first time in more than four years. Regardless of how prices behave, staples enjoy a stable demand due to their daily usage among consumers.
Against this backdrop, let’s look at the fundamentals of the three consumer staples stocks.
Altria Group, Inc. (MO)
MO manufactures and sells smokeable and oral tobacco products. The company primarily offers cigarettes under the Marlboro brand, large cigars, and pipe tobacco under the Black & Mild brand, moist smokeless tobacco, and snus products under the Copenhagen, Skoal, Red Seal, and Husky brands.
On June 21, MO announced that the FDA issued marketing orders for NJOY ACE Pod Menthol 2.4%, NJOY ACE Pod Menthol 5%, NJOY DAILY Menthol 4.5%, and NJOY DAILY Extra Menthol 6%. The authorizations follow the FDA review of the Premarket Tobacco Product Applications submitted by NJOY, LLC in March 2020.
Through the first quarter of 2024, NJOY broadened distribution to over 80,000 stores and is set to expand to over 100,000 stores by year-end. The new portfolio addition of NJOY menthol e-vapor products positioned MO with an FDA-authorized portfolio to support adult smokers in their transition to smoke-free alternatives.
Also, on May 20, MO’s NJOY submitted a supplemental Premarket Tobacco Product Application to the FDA to commercialize and market the NJOY ACE 2.0 device. The device incorporates access restriction technology designed to prevent underage use, using Bluetooth® connectivity to authenticate the user before unlocking it.
For the first quarter ended March 31, 2024, MO reported net revenues of $5.58 billion. Its gross profit was $3.28 billion, and operating income was $2.67 billion for the quarter. The company’s net earnings of $2.13 billion indicate growth of 19.1% year-over-year, while its adjusted EPS came in at $1.15.
Street expects MO’s revenue for the second quarter (ended June 2024) to increase marginally year-over-year to $5.47 billion, while its EPS is expected to grow 2.4% year-over-year to $1.34 for the same period. For the fiscal year 2024, the company’s revenue and EPS are expected to increase 1.1% and 3% year-over-year to $20.72 billion and $5.10, respectively.
Over the past six months, MO’s stock has gained 14.3% and 4.4% over the past year to close the last trading session at $46.93.
MO’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
MO has an A grade for Quality. It is ranked #4 out of 10 stocks in the B-rated Tobacco industry.
For additional MO’s Momentum, Stability, Growth, Sentiment, and Value, click here.
Colgate-Palmolive Company (CL)
CL manufactures and sells consumer products internationally. It operates in two segments: Oral, Personal, and Home Care; and Pet Nutrition. The company offers toothpaste, toothbrushes, mouthwash, bar and liquid hand soaps, shower gels, shampoos, conditioners, deodorants and antiperspirants.
On June 14, CL’s Board of Directors declared a quarterly cash dividend of $0.50 per common share, payable on August 15, 2024, to shareholders of record on July 19, 2024.
CL pays an annual dividend of $2.00 per share, which translates to a yield of 2.06% on the current share price. Its four-year average dividend yield is 2.33%. The company’s dividend payouts have grown at a CAGR of 3.1% over the past three years.
CL’s trailing-12-month gross profit margin and EBIT margin of 59% and 20.83 are 66.9% and 124.2% higher than the industry average of 35.36% and 9.29%, respectively. Its trailing-12-month net income margin of 13.22% is significantly higher than the industry average of 5.05%.
CL’s net sales for the first quarter that ended March 31, 2024, increased 6.2% year-over-year to $5.07 billion. Its non-GAAP operating profit grew 15.3% from the year-ago quarter to $1.08 billion. Non-GAAP net income attributable to CL came in at $713 million and $0.86 per share, up 17.3% and 17.8% from the prior year’s quarter, respectively.
Analysts expect CL’s revenue and EPS for the second quarter (ended June 2024) to increase 4% and 12.5% year-over-year to $5.01 billion and $0.87, respectively. Furthermore, the company has topped the consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Shares of CL have surged 20.9% over the past six months and 28.3% over the past year to close the last trading session at $97.39.
CL has an overall B rating, equating to a Buy in our proprietary rating system. It also has an A grade for Quality and a B for Stability and Sentiment. It is ranked #8 out of 53 stocks in the B-rated Consumer Goods industry.
To see additional POWR Ratings for Momentum, Value, and Growth, click here.
Target Corporation (TGT)
TGT is a general merchandise retailer. It offers apparel for women, men, boys, girls, toddlers, infants, and newborns, jewelry, accessories, and shoes; beauty and personal care; paper products; and pet supplies. The company also offers dry groceries, dairy, frozen food, beverages, meat, food service, electronics, furniture, and more.
On June 24, 2024, TGT announced a partnership with global commerce platform Shopify to offer a selection of its popular merchants and their products on Target Plus, the retailer's third-party, highly curated digital marketplace.
The new partnership with Shopify would expand TGT through a hand-selected assortment of new and on-trend products and brands like True Classic, Caden Lane, and more, giving consumers even more options to explore at affordable prices and with exceptional quality.
TGT’s trailing-12-month asset turnover ratio of 1.99x is 139.6% higher than the 0.83x industry average. Its trailing-12-month CAPEX/Sales of 3.63% is 10.3% higher than the industry average of 3.29%.
In the first quarter that ended on May 4, 2024, TGT’s total revenue was reported at $24.53 billion. Its operating income stood at $1.30 billion. The company’s adjusted EPS reached $2.03. Furthermore, the company’s cash and cash equivalents stood at $3.60 billion as of May 4, 2024, versus $1.32 billion as of April 29, 2023.
Analysts expect TGT’s revenue and EPS for the fiscal second quarter (ending July 2024) to increase 1.7% and 21.8% year-over-year to $25.19 billion and $2.19, respectively. Also, the company has topped the consensus EPS estimate in three of the four trailing quarters, which is remarkable.
The stock gained 33.3% over the past nine months to close the last trading session at $146.11.
It’s no surprise that TGT has an overall rating of B, which translates to a Buy in our POWR Ratings system. TGT also has a B grade for Value, Momentum, and Quality. It is ranked #22 out of 36 stocks in the Grocery/Big Box Retailers industry.
Beyond what is stated above, we’ve also rated TGT for Sentiment, Stability, and Growth. Get all TGT ratings here.
What To Do Next?
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MO shares were trading at $46.93 per share on Thursday afternoon, down $0.00 (0.00%). Year-to-date, MO has gained 21.53%, versus a 17.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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