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2 No-Brainer Stocks to Buy in Consumer Goods

By Jason Hall – May 1, 2020 at 9:05AM

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There are investing opportunities to be found in coffee and alcoholic beverages.

The stock market crashed hard and fast as the implications of the COVID-19 pandemic became apparent, losing 35% of its value in barely over a month. For the record, the U.S. stock market has never fallen that far that quickly. Surprisingly to many observers, it's bounced back a lot faster than most expected. At this writing, the SPDR S&P 500 ETF Trust (SPY) -- a low-cost index fund that tracks the S&P 500 index -- is down about 14% from the pre-crash peak. 

Even with almost 30 million Americans have lost their jobs in the past six weeks and more job losses are expected, there remains optimism that the economy will open up sooner rather than later, and should rebound quickly. I, for one, am less optimistic that will prove to be the case. But I'm not selling stocks in fear; to the contrary, I think there are still opportunities to be found, even with the risk of an up-and-down economy until there are proven effective medical treatments for COVID-19 that may not be widely available before later this year. 

Two consumer goods stocks, in particular, look like no-brainers: global coffee giant Starbucks (SBUX 0.59%) and Brown-Forman (BF.B), the company behind Jack Daniels and other popular spirits and wines. Keep reading to learn why they're both no-brainer investments right now, no matter what happens with the economy. 

Cocktails lined up on a bar.

The bar didn't close. It just moved home. Image source: Getty Images.

Global scale offsetting the short-term pains

Starbucks hasn't exactly had an easy time of it. The company's quarterly earnings report showed just how ugly things got in the U.S., with same-restaurant sales down more than 60% when stay-at-home orders went into effect. But a big chunk of that was due to the closure of Starbucks locations that closed; the company said its drive-thru and delivery locations that remained open only saw comps fall 25%. Sure, that's not ideal, but it's a better indication of the baseline, particularly with the company getting ready to start opening more of its stores in the weeks ahead. 

Management is counting on that, saying comps in the current quarter will be closer to the 25% decline and by the end of the fiscal year sales should only be off about 10%. Those are levels the company can live with in the U.S., particularly as other markets like China -- its biggest outside North America -- recover more quickly. 

At recent prices, you can buy a dominant and popular global brand that's proving popular and resilient for a 23% discount to the all-time high in 2019. That may not look cheap based on the decline in earnings we will likely see for most of the rest of 2020, but with 2019 as a baseline for a fully healthy Starbucks, it's a solid value for the dominant leader in its industry

A good business no matter the economy

When we last went through a major economic crisis in 2008, the entire global financial system was on the brink of disaster. Unemployment skyrocketed, and it took years to fully recover. But while stocks were crashing by more than half from late 2007 through 2009, Brown-Forman's sales were nearly flat, and operating cash flow actually increased:

BF.B Revenue (TTM) Chart

BF.B Revenue (TTM) data by YCharts.

Simply put, being in the booze business isn't necessarily a bad thing during periods of economic crisis. 

Sure, there are some differences this time around. Millions of bars, restaurants, sporting events, concerts, and conferences where Brown-Forman beverages are sold are closed or won't happen this year, not to mention all that duty-free booze people buy in airports. That's sure to take a shot or two out of the company's results; management tipped its glass at that idea earlier this year, lowering full-year guidance

But even the cause of its pains could help provide a solution: Brown-Forman and other spirits producers have the capability to make hand sanitizers, helping make up for lost sales and providing a product that's in huge demand by consumers. 

There's the bottom line, however: Like Starbucks, Brown-Forman's beverages are likely to remain in strong demand, even during the coronavirus shutdown. That's proven the case in every prior economic downturn and it's unlikely to be any different this time around. That's a big reason why Brown-Forman has increased its dividend every year for more than 30 years in a row. 

Jason Hall owns shares of Starbucks. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.

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