Dividend Stocks

The Unshakeable Seven: Bet On These Consumer Defensive Stocks to Navigate Market Mayhem

While the string of robust jobs reports (the April print aside) offers an optimistic view of the economy, a more nuanced analysis arguably drives the case for consumer defensive stocks to buy. With multiple factors to consider, playing it (relatively) safe might not be a bad idea.

For one thing, the April jobs report showed that the economy added fewer employment opportunities than expected. This dynamic indicates a disinflationary trend, which may be what the Federal Reserve wants. However, it also suggests that fewer employers – especially those offering high-paying jobs – are in the labor market.

Second, consumers have been demonstrating caution for certain discretionary purchases. This pensiveness also extends to health and personal care expenditures. Amid a collective credit card debt load that soared beyond $1 trillion, that’s understandable. However, it also suggests that cyclical ideas could suffer.

In that case, consumer defensive stocks to buy may be the way to go. Below are several names to consider.

Walmart (WMT)

Source: fotomak / Shutterstock.com

As a big-box retailing giant, Walmart (NYSE:WMT) makes a practical case for consumer defensive stocks to buy. It’s open to any customer, thus preventing the friction associated with membership-only retailer. Further, Walmart’s convenient locations and massive footprint enables it to soak up demand that’s not tied to e-commerce transactions. As well, online retailers might incur challenges if the economic situation worsens.

It’s no surprise that Walmart has consistently matched or exceeded bottom-line quarterly targets. In fiscal 2023, the company’s average positive earnings surprise came out to 6.88%. I don’t expect many surprises (good or bad) for its upcoming fiscal first-quarter disclosure, set for May 16. It should do what it’s been doing, which is perfectly fine.

For the current fiscal year, covering experts anticipate earnings per share of $2.36 on revenue of $637.49 billion. That’s a relatively solid improvement from last year’s results of $2.22 EPS on sales of $648.12 billion. Combined with a forward annual dividend yield of 1.37%, WMT makes for a decent idea for consumer defensive stocks to buy.

TJX Companies (TJX)

An outside shot of a T.J. Maxx (TJX) store in Romeoville, Illinois.

Source: Joe Hendrickson / Shutterstock.com

A department store operator primarily focused on the apparel retail segment, TJX Companies (NYSE:TJX) makes an arguably strong case for consumer defensive stocks to buy. Yes, it’s true that consumers have been cutting back on apparel. However, with the job market for white-collar positions increasingly getting more competitive, it’s imperative to make a good first impression. TJX can help facilitate this directive at a discount.

Similar to Walmart, TJX isn’t delivering what I would call remarkable results. Instead, it’s putting one foot in front of the other and making forward progress. As a defensive idea, you really can’t ask for much more. In fiscal 2023, the company posted an average positive earnings surprise of 7.58%. I don’t expect many fireworks (again, good or bad) when it releases Q1 results on May 22.

For the current fiscal year, analysts anticipate EPS to land at $4.10 on revenue of $56.28 billion. These stats represent a decent improvement over last year’s results of earnings of $3.86 on sales of $54.22 billion. TJX pays a forward yield of 1.52%, which is something to keep in mind.

Colgate-Palmolive (CL)

Colgate toothpaste and mouthwash in a cup with a toothbrush

Source: monticello / Shutterstock.com

As a powerhouse brand in the consumer goods sector, Colgate-Palmolive (NYSE:CL) makes an obvious case for defensive ideas to consider. No matter what happens in the economy, people need to take care of themselves, whether we’re talking about oral hygiene or other needs. Further, people need to address regular maintenance issues within their residences. Colgate-Palmolive provides the products that people use every day.

What’s more, the Colgate brand may benefit from generational awareness. Chances are, if your parents used particular consumer brands, you might follow suit out of habit. Unsurprisingly, the company has benefited from consistent financial performances. In the past four quarters ending Q1 2024, Colgate’s average positive earnings surprise came out to 4.7%.

For fiscal 2024, covering experts believe EPS will land at $3.53 on revenue of $20.21 billion. Again, that’s a solid improvement over last year’s results of $3.23 EPS on sales of $19.46 billion. The company also carries a forward dividend yield of 2.1%. That makes CL a steady hand among consumer defensive stocks to buy.

Coca-Cola (KO)

A photo of soda ash in crystal form.

Source: Mitzxxz / Shutterstock.com

A soft-drink manufacturer, Coca-Cola (NYSE:KO) represents one of the most recognizable brands in the world. Based on present economic conditions, KO could also be one of the top consumer defensive stocks to buy. With white-collar jobs becoming increasingly difficult to attain in this labor market, trips to pricey coffee shops add up. However, caffeine-addicted Americans need to find a cheap alternative.

That’s where Coca-Cola comes into play. With a variety of pick-me-up beverages to choose from, customers can get their fix and spare their wallet. In the past four quarters ending Q1 2024, the company’s average positive earnings surprise reached 4.38%.

For the current fiscal year, analysts are looking for EPS of $2.82 on revenue of $45.68 billion. That’s a relatively sizable improvement over last year’s print of earnings of $2.50 on sales of $42.5 billion. Further, next year could see EPS of $3.02 with a top line of $47.89 billion.

Coca-Cola also carries a forward yield of 3.07%. That alone helps make it one of the consumer defensive stocks to buy.

McDonald’s (MCD)

McDonald's restaurant in Thailand.

Source: Tama2u / Shutterstock

The crown jewel of the fast-food industry, McDonald’s (NYSE:MCD) may be an anachronistic name. Nevertheless, consistent demand and a willingness to innovate makes MCD one of the top-tier consumer defensive stocks to buy. Outside of a severe economic fallout, there appears to be robust demand for cheap eateries. Plus, its drive-thru only concept CosMc’s could be a hit as social normalization trends accelerate.

Generally speaking, McDonald’s consistently beats its bottom-line quarterly targets. In the past four quarters, its positive earnings surprise came out to 5.93%. That said, Q1 saw a slight miss, with EPS of $2.70 falling short of the expected print of $2.72. Still, moving forward, a tough economic environment could cynically benefit McDonald’s as one of the low-cost leaders.

For fiscal 2024, analysts are looking for EPS to reach $12.20 on revenue of $26.62 billion. That’s a sizable leap from last year’s results of $11.15 EPS on sales of $23.82 billion. Combined with a forward dividend yield of 2.43%, MCD makes an attractive package for consumer defensive stocks to buy.

Five Below (FIVE)

storefront of a five below, FIVE Stock

Source: Jonathan Weiss / Shutterstock.com

A discount dollar store, Five Below (NASDAQ:FIVE) adds a distinct twist to the framework. Rather than focusing strictly on $1 products, Five Below features a mainline product portfolio that goes up to $5. Moreover, it offers a select range of merchandise that can rise to $25. Therefore, this pricing flexibility attracts a wider customer base. It’s tailored for modest-income shoppers as well as everyday bargain hunters.

To be fair, FIVE stock has been a heavily volatile idea. Therefore, only the most risk tolerant speculators should consider it. At the same time, the red ink may present a relatively discounted opportunity. Outside of its fiscal Q4 2023 earnings print (which was a miss), the overall performance last year was solid. The positive earnings surprise inclusive of the miss came out to 3.1%.

For the current fiscal year, experts are projecting EPS of $6.04 on revenue of $4.04 billion. It’s possible that the EPS target could be optimistic. However, the top-line forecast could be reasonable given the broader demand profile.

Philip Morris (PM)

Philip Morris factory offices in Lithuania. PM stock.

Source: Vytautas Kielaitis / Shutterstock

A tobacco giant focused on global markets, Philip Morris (NYSE:PM) is undoubtedly controversial. For one thing, anti-tobacco advocacy groups have done an excellent job detailing the health risks of smoking. Also, younger investors are more attuned to environmental, social and governance (ESG) concerns. Buying up shares of a tobacco company might appear contradictory to this narrative.

However, we also know that meme-stock traders aggressively bid up shares of private prisons. As an investment category, one could make the case that private prions represent the most contentious idea. So, I really believe that the ESG risk to Philip Morris is less than what many experts fear. And aside from a miss in Q4, the tobacco giant has consistently beaten its bottom-line quarterly targets.

For fiscal 2024, analysts are projecting EPS of $6.29 on revenue of $36.94 billion. These figures represent a solid improvement over the prior year’s print of $6.01 EPS on sales of $35.25 billion. What’s more, the popularity of alternative smoking products (i.e. vaping) should make PM stock a buy.

Oh yeah, the company offers a forward dividend yield of 5.22%. It’s one of the consumer defensive stocks to buy.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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