With the market's recent volatility keeping investors on edge, the familiarity and reliability of consumer staples stocks might seem tailor-made for times like these.
You should be familiar with the products these companies make, and you probably have some of them in your home. Consumer staples are considered non-discretionary, which means they're goods you simply aren't going to go without -- food, toiletries, soap, etc. On the other hand, consumer discretionary stocks would be things like apparel or travel. These are sensitive to the economy: When things are going great, people splurge, but when times are bad, they cut spending. That's why consumer staples are especially attractive right now.
While you are self-quarantining at home, you won't have to go far to find some investment ideas.
First stop: The bathroom
Anglo-Dutch multinational Unilever (NYSE:UL) (NYSE:UN) is one of the largest consumer products companies in the world. If you washed your face with Dove, shaved with Dollar Shave Club razors, or shampooed your hair with Suave, you used Unilever products. If you then went downstairs and had a cup of Lipton tea with some Sealtest milk to lighten it, you used Unilever products.
Unilever, which has a market capitalization over $109 billion and delivered $52 billion in revenue last year, is a classic defensive stock. People will forgo fancy cars, cruises, and fashion; they won't forgo deodorant, even when social distancing. Unilever isn't the most exciting stock, but it currently trades at a price-to-earnings (P/E) ratio around 18 with a dividend yield of roughly 4%. During the month of March, the stock is down 14%, versus an 18% drop in the S&P 500 (through midday Tuesday).
Pro tip: Both the Dutch and the British shares trade on the New York Stock Exchange. "UL" represents Unilever Plc, or the British share. "UN" represents Unilever NV. The shares represent the exact same ownership in the company and receive the same dividend. But UN trades at a higher volume and has performed slightly better over time -- and it's cheaper. Save yourself a couple of bucks a share and buy UN.
What's in your medicine cabinet?
If you aren't feeling great, you will probably will find numerous Pfizer (NYSE:PFE) products in your medicine chest. Have a headache? Take an Advil. High cholesterol? You're probably on Lipitor. Dry, chapped lips? You probably have a Chapstick in your purse or at your desk.
Pfizer is another giant in the healthcare space, with a $165 billion market cap. The stock currently trades at a P/E of 10 and has a 5.3% dividend yield. Health care stocks are generally defensive, as everyone gets sick, recession or not. Pfizer's low multiple represents the fact that it doesn't really have a blockbuster in the pipeline and has the always-present risk of government price controls. But it, too, is down less than the broader market -- since the beginning of March, Pfizer is down 11% versus the 18% drop in the overall stock market.
Next stop: The kitchen
With coronavirus putting everyone on lockdown, people will have to skip the restaurant and cook at home. Even if you aren't Gordon Ramsay, you still probably have a shelf filled with McCormick (NYSE:MKC) spices and products. McCormick sells the McCormick branded spices, Lawry's seasoned salt, Old Bay, French's, and Simply Asia products.
McCormick has a $16 billion market capitalization, trades at a P/E ratio of 24, and has a 2.1% dividend yield. While revenue growth was flattish last year, earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 6%. The change in corporate tax law makes the EPS comparison difficult. The stock has dropped 16% in March, which is still better than the overall 18% drop in the stock market. McCormick will report earnings on March 31. Bottom line, McCormick is another defensive stock. People may forgo Sub-Zero appliances in a recession, but they'll still buy mustard and chili powder.
All three of these stocks have held up better than the overall market during this month's decline in the markets. As defensive stocks, they aren't necessarily going to make you a fast buck, but they are stalwarts, and investors should include some of these defensive blue-chip stocks in their portfolio. Luckily you won't have to go far to start your research on them.