Fundamentally Global: Consumer Staples Stocks

In this article, a second one in the "Fundamentally Global" series, we'll take a close look into the universe of global Consumer Staples and pick the best ones (based on fundamentals, of course).

Economic winter is coming

Wall Street has been on a downward spiral throughout 2022, as concerns about inflation and interest rates have been exacerbated by global events, most notably the war in Ukraine and China’s efforts to stamp out the coronavirus.

The S&P 500 Index sank into a bear market with investors fearing that the Federal Reserve will need to hike interest rates more aggressively to fight the surging inflation, even at the risk of sending the US economy into recession. Whether or not the recession (or worse, stagflation) is priced in the markets already, investors need to prepare.

That doesn’t mean that they need to cash out and run for their lives. Jim Cramer, host of CNBC’s “Mad Money” often says “there’s always a bull market somewhere” - a reminder that good investing opportunities always exist in the stock market, even when it’s down.

Sector investing is like tossing a coin

There are sectors that are less susceptible to economic downturns, such as consumer staples, utilities and health care. These sectors have generally better chances to weather the downturn; however there’s no certainty, of course. If you look at annual S&P 500 sector performance dispersion, it’s easy to see that even at the time of calm or rallies, winners and losers constantly interchange. Picking the best and worst-performing sectors in a given year is an impossible task:

As we’ve established, sector investing is especially dangerous in current market conditions: when there’s scarce liquidity, money doesn’t “lift all boats” but rather chases quality companies with little debt, steady cash flow and good management. Therefore, investors should leave the idea of buying a sector ETF for better times; while we are in crisis, it’s time to discriminate on the basis of fundamentals.

Money runs away from sector ETFs 

Retail investors understand trouble when they see it: in May, US sector exchange-traded funds saw their biggest monthly drawdown on record. Money has exited from every sector ETF except for consumer staples, which registered net inflows as traders are convinced that consumers will shift their spending to essentials amid building price pressures. 

While we don’t know how much of the money taken out of sector ETFs has left the stock markets entirely, the market mood currently is “Extreme Fear” meaning that many retail investors are probably cashing out, locking in losses. When we hit that bear market territory, fear starts to feed on itself, and that causes people to sell. When fear starts to be the driving force in our behavior, it can become a self-fulfilling prophecy in the markets. 

But for rational investors, who are willing to dive deep into financial reports, this sell-off could be full of opportunities. While we can’t time the markets and the bottom is always seen best in hindsight, we should position ourselves defensively, while staying in stocks so that we don’t miss the future upside. 

AI advising traders: Look for quality in defensive parts of the market!

Traders unnerved by a selloff that hit stocks and bonds alike are looking for refuge. This situation increases the appeal of investments offering stability, pricing power, and dividends. In short, “boring” stocks that don’t promise high growth rates, but whose downside is limited, are now looking attractive. Now that stock valuations are down to earth (though they may fall further as a weakening economy forces earnings downgrades), there’s a large pool of cheap quality stocks to choose from.

In this backdrop, investors are advised to choose “dull” companies that generate steady cash flows as stock markets face growing headwinds from inflation and a potential economic slowdown. Energy companies, utilities, metals and consumer-staples firms are likely to continue generating growing earnings even if the economy slows further.

Not all staples are created equal, but geography doesn't matter

Although people will always buy food, beverages and personal care products, in an economic downturn not all companies can sell to consumers that are suddenly forced to become much more frugal as inflation eats away at their disposable income. When you add supply chain troubles and rising producer prices, you see who can maintain or even grow their market share, and who loses the consumer base. With thinning profit margins, this is the survival of the fittest.

In order to find the fittest, investors need to look into companies' financial reports - and that is done best when you analyze the business you understand. Not everyone can really understand how blockchain works and what is the difference between a token and a stable coin - but groceries are quite learnable.  

And when you understand the business of the companies you invest in, you can read, analyze and compare their fundamentals in order to choose the best stocks with the highest chances to outperform their competitors. Then it doesn’t really matter whether the companies you analyze are located in your home country or on the other side of the globe, as numbers are the most common language. 

But… where do I get the data on these quality consumer staples stocks? How do I find the ones that haven’t been overbought yet? How do I compare stocks from different countries, whose language I don’t understand? How do I crunch these numbers?

Consumer staples stocks around the world: comparing the fundamentals

Don’t worry: there’s a genius AI analyst that has done all that for you. It has already found some quality companies, whose financials are strong enough to provide them with high chances to outperform their competitors, while their stock isn’t overbought yet, leaving some potential for an upside.

Let’s have a look at some AI-recommended companies. They are grouped by geography to prove that you can find great stocks on every continent, in every country of the world.

Americas:

Europe and Britain:

Asia Pasific:

Middle East and Africa:

As you can see, AI analytical tools can easily help investors find pretty exciting investment ideas - even in the most “boring” industries. The market downturn is a gold mine of investment opportunities - all is needed is time, patience and a little help from a friend, Deshe's AI analyst.