9 Consumer Stocks to Anchor Your Portfolio

Have you been buying junk? Have you been thumbing your nose at default risk and chasing after companies that have shown more red than the Philadelphia Phillies?

If you have, you've probably been pretty happy with the results. As a recent Bloomberg article highlighted, the seemingly lowest-quality companies have watched their stocks outperform so far this year. Bloomberg notes:

Consider shares of companies that rating agencies think could stiff lenders. Stocks of so-called junk-rated companies rose 19 percent from the start of the year through Dec. 16, according to Bespoke. By comparison, those of stable and flush companies with ratings of AA or higher returned six percent.

Now, I'm no stranger to the allure of Dumpster diving -- earlier this month I highlighted five beaten-down stocks that I think could surprise investors. But as much as I like those picks, I would not want to rely on any of them to be part of my core holdings -- that is, the high-quality, mostly dividend-paying companies that anchor my portfolio.

What's interesting is that thanks in large part to investors' love of junk this year, many higher-quality companies are trading at attractive valuations. In few sectors is this quite as noticeable as consumer staples. The sector has underperformed the total S&P 500 index year-to-date, quarter-to-date, and month-to-date. In fact, during December, utilities is the only group to lag consumer staples.

But these are largely great companies that we're talking about and many of them are well worth investor attention. Here are nine that you could consider for your Christmas stock shopping list.

1. Wal-Mart
I'm selfishly hesitant to mention Wal-Mart -- I've been contemplating adding to my personal stake in the stock and as soon as I mention it, I have to wait before buying. But the list could hardly be complete without Wal-Mart. The company is the retail giant, a well-run -- if highly controversial -- company that delivers low prices for its customers just as it brings profit back to its shareholders. And with a forward price-to-earnings multiple of just over 12, I think it's a steal.

2. Procter & Gamble (NYSE: PG  )
I'm not crazy about P&G's current valuation. However, its price isn't nearly high enough
that we could deign to leave it off this list. A brand powerhouse that includes such must-haves as Gillette, Crest, Pampers, and Old Spice, P&G and its 10% return on capital and 3% dividend can offer some much-needed quality in any portfolio. And if the stock price falls? That'd likely be a great opportunity to buy even more.

3. PepsiCo (NYSE: PEP  )
Wait, what happened to PepsiCo's well-known, well-loved archrival? Sorry, but it's not making an appearance here. It's a great company, I love the products, but it's just gotten too pricey. I have, however, had my eye on PepsiCo. The lesser cola company? Hardly. PepsiCo has a great beverage lineup, good global exposure, and an interesting eye on offering more nutritious products. As they say in Brazil, "Pode ser bom, pode ser muito bom, pode ser Pepsi" ("Can be good, can be very good, can be Pepsi").

4. Altria (NYSE: MO  )
Am I hypocritical for hating smoking but suggesting an investment in a cigarette company? Yes, probably, but I'll work that out that inner struggle with my therapist. For our purposes here, though, Altria has been hands-down one of the best equity investments out there. The stock has had a serious run-up since mid-summer, but investors that jump in today will still grab a 6.1% dividend.

5. and 6. CVS (NYSE: CVS  ) and Walgreen (NYSE: WAG  )
Which of the two battling pharmacy titans is better? I think Walgreen may be the better company, but CVS is the cheaper stock, so I'll leave it as a bit of a toss-up. Suffice it to say that investors should be well served by either. Though health care is one of the few sectors to lag consumer staples this year -- and both CVS and Walgreen straddle the sectors -- I'm sold on the long-term prospects for well-entrenched areas of health care like drugstores.

7. Kimberly Clark (NYSE: KMB  )
Kimberly Clark's products don't get treated well. We blow our nose on Kleenex, wipe up messes with Scott paper towels, and our babies ... well, they do what they do in Huggies. But the company's stock is another matter entirely. With a very solid business, a 14% return on capital, a 14 price-to-earnings ratio, and a 4.2% dividend, this is a stock well worth owning.

8. Hershey (NYSE: HSY  )
On the basis of its P/E ratio, Hershey doesn't look particularly cheap, and really it's not terribly cheap. However, to get the real financial story for Hershey, you have to tune in to the company's prodigious cash flow. From a business perspective, while many other branded consumer staples companies are battling with private-label products, I see the threat as much lower for Hershey. Personally, I have been known to buy off-brand paper towels, but if I'm hankering for some Reese's or a Kit-Kat, I'm not settling for anything but the real thing.

9. Molson Coors
Beer, a staple among staples. What's better than kicking back in your favorite armchair with a cold brew? How about knowing that cracking open that beer is helping to pay you a dividend? Molson is a solid, easily understood company that's currently trading at a reasonable price. Earlier this year during the Fool's 11 O'Clock stock series, Molson also became an official Motley Fool holding.

Any one of the nine stocks above could put you to sleep with its plodding day-to-day movements. But I think all of those nine will be solid investments over the next five to ten years. Think I've skipped over a good one? Head down to the comments section and make your pitch.

I think Wal-Mart is a great pick right now, but my fellow Fools aren't so sure. They see Wal-Mart taking a back seat to some new "cash kings" in the changing retail sector. Find out who these cash kings are by checking out the free special report.

Molson Coors Brewing and Wal-Mart are Motley Fool Inside Value recommendations. Wal-Mart is a Motley Fool Global Gains selection. Kimberly Clark, PepsiCo, and Procter & Gamble are Motley Fool Income Investor recommendations. The Fool owns shares of and has written covered calls on Procter & Gamble. Motley Fool Options has recommended a diagonal call position on PepsiCo. The Fool owns shares of Altria, Molson Coors, and Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Wal-Mart, but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.


Read/Post Comments (3) | Recommend This Article (13)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 22, 2010, at 3:56 PM, JohnnyJay wrote:

    You list some great companies here. You also mentioned that the one consumer staple sector that has been lagging is utilities, but some utilities are doing real good. ConEdison (ED) has been steady rising all year & have raised their dividend for the past 30+ years. Another, Dominion Resources (D) just announced another div. raise for 2011. A 7.7% increase. It has been lagging in price early this year but is now showing a strong comeback. One last utility to mention is Allaint Energy (LNT). A steady increase all year plus another div. increase of 7.6% for 2011. I own all 3 as part of my core holdings. These should also be added to a long term portfolio(retirement). The income produced by these companies will let you enjoy a confortable retirement as they have for me.

  • Report this Comment On December 22, 2010, at 4:43 PM, TMFKopp wrote:

    @JohnnyJay

    To be clear, the statement about utilities lagging consumer staples pertains only to the price action of the entire industry, not the quality of the individual companies in the industry. I completely agree that some utilities can be good investments -- however, they're obviously investments that investors have been overlooking in recent times.

    Matt

  • Report this Comment On December 23, 2010, at 12:31 AM, DrRonPaul4Prez wrote:

    As far as the discussion on utilities, my single biggest holding is AEE. Not a company that tends to generate a whole lot of discussion, but it's done me well in the nine months I've had it. Don't plan to sell out any time soon.

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