The Federal Reserve’s aggressive rate hikes to curb persistently high inflation has brought upon a stock market downturn this year. The S&P 500 lost 16.9%, while the Dow Jones Industrial Average lost 7.7% year-to-date.
However, with inflation at last showing signs of cooling down, the market has seen a bounce recently. Though experts believe this market optimism would not last as a monetary policy pivot seems unlikely in the near term. As inflation is still far from the Fed’s desired level, the rate hikes are expected to continue.
The consecutive rate hikes have raised widespread recessionary concerns. JPMorgan economists expect the economy to contract by 0.5% in the fourth quarter of 2023, with the slowdown dragging further into 2024. Moreover, a bank manager survey by Bank of America found that 77% believed a global recession was imminent.
Consumer staples like food and beverage enjoy inelastic demand for their products. Hence, these companies usually generate stable revenues even during recessionary periods, making them solid buys during market downturns.
Against this backdrop, it would be wise to buy and hold fundamentally strong consumer stocks The Coca-Cola Company (KO), Constellation Brands, Inc. (STZ), and Lifeway Foods, Inc. (LWAY).
The Coca-Cola Company (KO)
KO, a popular beverage company, manufactures, markets, and sells various non-alcoholic beverages worldwide. The company provides sparkling soft drinks, flavored and enhanced water, sports drinks, juice, dairy, plant-based beverages, tea and coffee, and energy drinks.
On October 20, a dividend of 44 cents per common share was declared by KO, payable to shareholders on December 15, 2022. The solid cash generation ability of the company is reflected here.
On September 29, KO and Molson Coors Beverage Company (TAP) expanded its exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails. It is set to be launched in more than 20 markets across the country in 2023, which should benefit the company.
For the fiscal third quarter ended September 30, KO’s non-GAAP net operating revenue came in at $11.05 billion, up 10% year-over-year. Its non-GAAP gross profit increased 6.5% year-over-year to $6.54 billion. Furthermore, its non-GAAP net income per share increased 6.2% year-over-year to $0.69.
Analysts expect KO’s EPS and revenue to increase 7% and 10.4% year-over-year to $2.48 and $42.67 billion for the fiscal year ending December 2022. Moreover, KO has an impressive surprise earnings history, as it has topped consensus EPS estimates in all four trailing quarters.
The stock has gained 7.7% over the past year to close its last trading session at $60.52. It has gained 10.1% over the past month.
KO’s POWR Ratings reflect a promising outlook. The stock 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 also rated a B in Stability, Sentiment, and Quality. Within the A-rated Beverages industry, it is ranked #18 of 34 stocks.
To see additional POWR Ratings for Value, Growth, and Momentum for KO, click here.
Constellation Brands, Inc. (STZ)
STZ produces, imports, markets, and sells beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company offers its products to wholesale distributors, retailers, on-premise locations, and state alcohol beverage control agencies.
On November 10, STZ announced it had completed its reclassification transaction and elimination of its Class B common stock. This reclassification is expected to provide a strong base for the company’s strategic growth.
STZ’s net sales increased 12% year-over-year to $2.66 billion in the fiscal second quarter that ended August 31. Its non-GAAP gross profit grew 13% from the year-ago value to $1.37 billion. The company’s non-GAAP operating income increased 20.9% year-over-year to $882.70 million. Also, its non-GAAP EPS stood at $3.17, up 33.2% year-over-year.
The company expects a comparable EPS (excluding Canopy) outlook between $11.20 - $11.60 for the fiscal year 2023. The company expects an operating cash flow between $2.6 - $2.8 billion and a free cash flow between $1.3 - $1.4 billion for fiscal 2023.
The consensus EPS estimate of $11.06 for the fiscal year ending February 2023 represents an 8.4% year-over-year improvement. The consensus revenue estimate of $9.51 billion for the same year represents a 7.8% increase from the prior year. Moreover, STZ has topped consensus EPS estimates in all four trailing quarters, which is impressive.
STZ has gained 5.2% over the past year to close the last trading session at $243.22. It has gained 9.6% over the past month.
The stock has an overall rating of B, translating to Buy in our POWR Rating system.
STZ has a B grade for Growth, Sentiment, and Quality. It is ranked #16 in the Beverages industry.
Beyond what is stated above, we’ve also rated STZ for Value, Momentum, and Stability. Click here to get all STZ ratings.
Lifeway Foods, Inc. (LWAY)
LWAY produces, markets, and sells probiotic-based products internationally. The company’s primary product is drinkable kefir, a cultured dairy product. The company also provides European-style soft cheeses. The company sells its products under the Lifeway and Fresh Made brand names and under private labels.
Julie Smolyansky, Lifeway's President and Chief Executive Officer, stated, “We have recently gained traction within the convenience channel, and see this as an opportunity to build brand awareness and introduce new consumers to our single-serve products. We look forward to finishing the year strong and preparing for a healthy 2023."
LWAY’s net sales increased 29.1% year-over-year to $38.14 million in the fiscal third quarter ended September 30. Net income increased 104.8% year-over-year to $983 thousand in the same period. Furthermore, LWAY’s earnings per common share stood at $0.06, up 100% from the prior-year period.
Analysts expect LWAY’s revenue and EPS for the fiscal year ending December 2023 to increase 5% and 375% year-over-year to $152 million and $0.38, respectively.
The stock has gained 37.1% over the past month and 56.7% year-to-date to close the last trading session at $7.21.
LWAY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
LWAY has an A grade for Growth and a B for Value, Stability, Sentiment, and Quality. Within the Food Makers industry, it is ranked #4 of 49 stocks.
To see additional POWR Ratings (Momentum) for LWAY, click here.
KO shares were trading at $60.44 per share on Thursday afternoon, down $0.08 (-0.13%). Year-to-date, KO has gained 4.36%, versus a -16.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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