The consumer staples sector, traditionally known for its bond-like stability and dividend payouts, has faced a challenging year. Factors like a significant uptick in treasury yields, the rising popularity of weight-loss medications such as Wegovy, and concerns over lofty valuations have converged, creating what UBS analyst Pete Grom calls a “perfect storm of events,” as reported on Yahoo Finance Live.
These headwinds have triggered a selling spree as investors seek to reduce their exposure to these typically steady performers. Year-to-date, the consumer staples sector (XLP) has experienced a decline of over 9%, in contrast to the S&P 500’s 12% ascent.
However, could a shift in sentiment be on the horizon?
While it’s still early in the earnings season, commentary from C-suite executives has been notably positive, especially concerning commodity prices and weight-loss drugs.
Procter & Gamble CEO Jon Moeller, in an interview with Yahoo Finance Live, mentioned that he anticipates lower commodity costs will “help” the company’s results and expects to gain around $800 million in tailwinds due to favorable commodity pricing for the remainder of the fiscal year.
Earlier this month, Pepsico CFO Hugh Johnston, in a conversation with Yahoo Finance, indicated that the company has not seen “any impact” from weight-loss drugs, following a report of better-than-expected third-quarter results.
A similar outlook is shared by beverage giant Constellation Brands, with its CEO Bill Newlands expressing confidence that weight-loss drugs are not diminishing the demand for beer, dismissing such concerns as “overblown.”
So, what are the top ways to navigate this struggling sector? Yahoo Finance Live posed this question to strategists and leading analysts, and it appears they have identified some enticing opportunities for investors seeking bargains in a volatile market.
Procter & Gamble (PG)
Procter & Gamble surpassed third-quarter earnings estimates and reaffirmed its full-year guidance, leading to a positive upturn in its share price. UBS analyst Pete Grom suggests that the better-than-expected results, combined with easing commodity costs, position Procter & Gamble particularly well compared to its peers. Grom emphasized, “The point of differentiation is they’re driving category growth and gaining market share.”
P&G reported a 7% growth in organic sales for its most recent quarter, with improvements seen across all ten of its product categories. CEO Jon Moeller described the results as “strong,” noting that the company is on a solid path to achieving the higher end of its fiscal year guidance.
Johnson & Johnson (JNJ)
The increasing popularity of weight-loss drugs has not only influenced consumer eating habits but also the demand for weight-loss surgeries, impacting medical device makers like Johnson & Johnson.
The recently restructured company reported a slowdown in sales in its Medtech division during the third quarter, partly due to reduced demand for weight-loss procedures. However, analysts believe this challenge will be short-lived, with one strategist indicating that the risk is already factored into the stock’s price.
RBC analyst Shagun Singh stated, “It’s a small impact for them… and it’s already factored in,” highlighting that Johnson & Johnson is a quality company well-positioned in the current interest rate environment as we approach 2024.
Year-to-date, J&J shares have experienced a 13% decline.
Hershey Company (HSY): Despite Recent Struggles, a Strong Case for Investors
Hershey has been among the underperformers in the consumer staples sector over the past six months, witnessing a decline of more than 25% in its shares since reaching a 52-week high on May 1, resulting in a roughly 30% drop.
Nevertheless, Portfolio Wealth Advisors president Lee Munson emphasized to Yahoo Finance that there are still compelling aspects to consider regarding this iconic American company, particularly its steadfast dividend.
Munson pointed out, “There used to be a time when a stock had a 2.5% dividend, that was actually higher than a ten-year treasury and people loved it. I think over the next year or two, that’s going to come back en vogue. Take advantage of the staples people still want to buy.”
Highlighting its commitment to shareholders, Hershey increased its dividend by 15% to $1.19 per share in July, marking the 13th consecutive year of dividend hikes.
Investors can look forward to Hershey’s upcoming third-quarter results, scheduled to be reported on Thursday, October 26.
