5 Consumer Staples Stocks to Buy for a Stable Portfolio

U.S. stock markets have seen an impressive rally in 2024 barring an April setback. This strong performance continues after an astonishing rally in 2023. However, several key economic data from April indicate that the U.S. economy is cooling.

The Department of Commerce reported that U.S. GDP grew at a 1.6% annualized rate in first-quarter 2024, well below the consensus estimate of 2.5%. Moreover, the Institute of Supply Management reported that both manufacturing and services PMIs (purchasing managers' index) contracted in April.

The U.S. economy added 175,000 jobs in April, missing the consensus estimate of 200,000. The unemployment rate increased to 3.9% in April, compared with the consensus estimate and March's data of 3.8%. April marked the highest level since January 2022.

Month over month, the average hourly earnings rate dropped to 0.2% in April, compared with the consensus estimate and March's data of 0.3%. Year over year, the wage rate increased 3.9% in April, below the consensus estimate of 4%.

The Department of Commerce reported that retail sales in April remained flat month over month. However, the consensus estimate was for an increase of 0.4%. The data for March was revised downward to an increase of 0.6% from 0.7% reported earlier.

Year over year, retail sales increased 2.7% in April. Meanwhile, the consumer price index — a key inflation gauge — increased 3.4% year over year in April. This clearly indicates that consumers did not keep up with the pace of price increases.

The University of Michigan reported that the final reading of consumer sentiment in May came in at 69.1%. However, the final reading of May was well below April's final reading of 77.2%. May's reading was the lowest since November 2023.

The sub-index for current economic conditions in May came in at 69.6% compared with 79% in April. Similarly, the sub-index for consumer expectations came in at 68.8%, compared with 76% in April.

At this stage, investment in defensive stocks like consumer staples to stabilize your portfolio should be a prudent strategy.

Consumer Staples Immune to Vagaries of Economic Cycle

The consumer staples sector is mature and fundamentally strong as demand for such services is generally immune to changes in the economic cycle. The consumer staples sector includes companies that provide necessities and products for daily use. This makes the sector defensive in nature.

Therefore, this has always been a go-to place for investors, who want to play it safe during extreme market fluctuations irrespective of internal or external disturbances. Moreover, the sector is known for the stability and visibility of its earnings and cash flows. Consequently, adding stocks from the consumer staples basket lends more stability to one's portfolio.

Our Top Picks

We have narrowed our search to five consumer staples stocks with strong growth potential for 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy).

The chart below shows the price performance of our five picks year to date.

Image Source: Zacks Investment Research

Colgate-Palmolive Co. CL has been gaining from strong pricing, and the benefits of funding growth and other productivity efforts. This, along with solid business momentum, led to CL's robust performance during first-quarter 2024.

With regard to accelerated revenue growth, management plans aided CL's organic sales in the first quarter. Gross margin expanded by 310 basis points. CL anticipates net sales growth of 2-5% for 2024, higher than the 1-4% growth mentioned earlier.

Colgate-Palmolive has an expected revenue and earnings growth rate of 3.9% and 9.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last 30 days.

Tyson Foods Inc. TSN is focused on executing fundamental strategies to maximize its multi-protein portfolio. TSN raised its adjusted operating income guidance for fiscal 2024, reflecting confidence in its future performance.

With a diverse portfolio of core proteins and iconic brands, TSN continues to invest in brand building and innovation to drive long-term growth, domestically and internationally. The operational excellence of TSN remains another upside, with initiatives like plant closures and digitalization.

Tyson Foods has an expected revenue and earnings growth rate of 0.1% and 91%, respectively, for the current year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 9.9% over the last 30 days.

McCormick & Company Inc.'s MKC recent success stems from its robust strategic initiatives, driving shares up against industry decline. With a global portfolio aligned with consumer trends and innovative product platforms, MKC's focus on growth areas and efficiency bolsters its market presence.

MKC projects continued growth, prioritizing investments and cost-saving programs. Despite challenges like cost inflation and volume declines, MKC's acquisitions and efficiency programs promise margin expansion.

McCormick & Company has an expected revenue and earnings growth rate of 0.3% and 5.6%, respectively, for the current year (ending November 2024). The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the last 60 days.

PepsiCo Inc. PEP has been benefiting owing to its strength and resilience in core categories, diversified portfolio, modernized supply chain, improved digital capabilities, flexible go-to-market distribution systems and robust consumer demand trends.

Additionally, PEP's international business continues to be the hallmark its overall performance, delivering significant volume and organic revenue growth in the first quarter. These factors along with robust pricing aided PepsiCo's earnings and organic revenues in first-quarter 2024. PEP's productivity and cost-management initiatives bode well. For 2024, PEP expects to deliver organic revenue growth of at least 4%.

PepsiCo has an expected revenue and earnings growth rate of 3.4% and 7.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.

Freshpet Inc. FRPT is a pet food company. FRPT manufactures and markets natural fresh foods, refrigerated meals, and treats for dogs and cats in the United States and Canada. FRPT sells its products under the Freshpet, Dognation, and Dog Joy brand names.

FRPT provides meat-based recipes, such as chicken, beef, lamb and salmon; fruits and vegetables, such as carrots, peas and leafy green vegetables, and high-fiber grains, such as brown rice, oats and barley.

Freshpet has an expected revenue and earnings growth rate of 24.8% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 24.1% over the last seven days.

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