Consumer staples refers to companies that create products considered essential by consumers. The consumer staples sector encompasses makers of everyday items like packaged food, toothpaste, and dish detergent. It’s considered to be a “defensive” sector because consumers tend to still buy such products even when times are tight, and because it includes many mature dividend-paying companies.
To compete on price consumer staples producers must be able to keep their costs down by adopting new technologies and processes, or they must differentiate by introducing innovative products. Whether we’re in a recession or a boom market, we’ll always need products like shampoo and toilet paper. As such, the companies that make these items are said to maintain reliable, steady growth regardless of the economy. These companies are essential to our daily life and do well even if the economy is waning.
This sector includes companies that manufacture and sell items considered daily or weekly consumer necessities. As you might have already guessed, the consumer staples stocks list is relatively lengthy, so to help, we have divided it into categories What is trading scalping to make it easier to understand. The term consumer staples refers to a set of essential products used by consumers. This category includes things like foods and beverages, household goods, and hygiene products as well as alcohol and tobacco.
- According to the S&P Dow Jones Indices, for most of the 10 years ending April 26, 2021, the consumer staples sector returned 8.20% annually.
- The top consumer staple stocks within the sector are issued by companies that produce and sell products that are considered essential and in demand regardless of economic conditions.
- And companies that have invested gains in advertising and long-term brand building may have an added tailwind.
- When exactly sales volumes pick up may depend on the health of the consumer and economy.
These goods are those products that people are unable—or unwilling—to cut out of their budgets regardless of their financial situation. The top consumer staple stocks within the sector are issued by companies that produce and sell products that are considered essential and in demand regardless of economic conditions. These companies tend to have stable and predictable earnings because demand for their products is relatively constant, regardless of economic conditions. This means they usually show less volatility, which can be ideal for long-term investors. Consumer staples stocks are known for their low volatility and the ability to deliver steady returns over time. The demand for essential products like food, beverages and personal care items tends to remain consistent regardless of broader economic conditions.
Many companies that produce these products have established brand names, solid reputations and loyal customers, which make them further resistant to economic instability and sector competition. Finally, although consumer staples stocks hold up well in recessionary periods, they tend to lag the broader market during boom times. The consumer staples sector divides into multiple sub-sectors depending on the products the company produces. Here are some of the largest subdivisions of the consumer sector and some of the major players in each industry.
Consumer Staples: 5 Things To Know About This Defensive Sector
I believe that companies with attractive valuations and strong pricing power may offer the strongest returns potential for 2024. Companies that can raise prices or hold them steady may be more likely to meet their profit-margin forecasts. And companies that have invested gains in advertising and long-term brand building may have an added tailwind. Consumer staples stocks often pay dividends, which are taxed as ordinary income. The rate of dividend taxation is determined by your income tax bracket, with rates spanning from 0% to 20%.
What unique risks does the consumer staples sector face?
Consumers generally buy these products regardless of their financial situation or economic stability. One of the primary reasons is that consumer staples are considered essential products https://www.topforexnews.org/news/treasury-department-will-begin-releasing-auction/ that people need regardless of economic conditions. Consumer staple companies are less likely to be affected by economic downturns than companies that produce nonessential products.
Use the graph below to track how the Consumer Staples Select Sector SPDR ETF (XLP) has been performing over the past three months, year and five years. Tracking the performance of this ETF is one way to gauge how the sector as a whole is doing. While Altria Group currently has a “Hold” rating among analysts, top-rated analysts believe these five stocks are better buys.
Active Investor
Researching the consumer staples sector requires ongoing investigation and a long-term eye toward investments. Consider consulting with a financial professional before choosing how to invest in the consumer staples market. Start by making a list of the companies that operate in the consumer staples sector or viewing a pre-compiled list like this one by MarketBeat. Look for the companies that produce and distribute essential consumer goods that you believe will be continued staples.
These stocks’ ubiquitous nature and dividend payments may cause them to be overvalued, limiting your potential for long-term growth opportunities. You can mitigate the risk of individual losses in the sector by investing in a consumer staples ETF, which offers an easy route to diversified sector exposure. The consumer staples sector is a varied micro-economy that covers a diverse range of companies.
More from our portfolio managers
Cyclical means there are ebbs and flows, or times when the consumer spends more and periods when they have more conservative spending habits. Even though the consumer staples sector will likely always be around, they face unique challenges today. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments.
Consulting with a tax advisor or financial planner can help you tailor a tax-efficient investment plan aligned with your financial objectives and tax reduction goals. These include makers of beauty and personal hygiene products such as Estee Lauder and Procter & Gamble. As such, they may https://www.day-trading.info/berndale-capital-review-2017/ not appeal to investors who seek rapid growth, or who are willing to take on a higher degree of risk for higher potential returns. MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.