It's not surprising that in times of turmoil, investors transition away from high-flying tech stocks to the safety of consumer staples stocks. These are the companies that sell the products people use on a day-to-day basis, so regardless of economic conditions, their sales will be hurt less.
It's the stability of the business model that investors seek out. Among the best of them, you can find solid dividend payers offering attractive yields. It's a powerful combination that helps them survive and even thrive in market downturns.
The following pair of consumer staples stocks will give your portfolio a hedge against a market crash.
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Spartan Nash
As a distributor, wholesaler, and retailer with 145 stores, Spartan Nash (SPTN +0.00%) has the entire supermarket food chain covered.
Grocery stores are just the sort of business that does well in a recession, because people aren't going to stop eating. Spartan Nash's logistics operations ensure that other supermarkets, e-commerce outlets (Amazon.com agreed to buy up to 15% of Spartan Nash stock in 2020), and military commissaries can also meet their customers' needs.
Yet Spartan Nash is undergoing a turnaround plan begun in 2019 while fending off attempts by activist investors to gain a presence on the board. Its results so far are promising, as it notes it has generated substantial free cash flow in that time, reduced its net long-term debt-to-adjusted-EBITDA leverage ratio to 1.8x, down from 3.7x at the end of 2019, and generated a total return of 251% for shareholders. At the same time, its stock has outperformed the S&P 500.
NASDAQ: SPTN
Key Data Points
Investors seem to like what they see as Spartan Nash's entire slate of board candidates was reelected at its annual meeting.
The food distributor and retailer pays a dividend of $0.84 per share annually that is currently yielding 2.7%. With its stock trading at 12 times next year's earnings estimates, a small fraction of its sales, and only 12 times the free cash flow it produces, Spartan Nash is a discounted consumer staple that should do well if the market crashes.
Kraft Heinz
For many reasons similar to Spartan Nash, I see Kraft Heinz (KHC +1.14%) as an excellent company to hedge against a stock downdraft. You see, the packaged foods giant has perfected the art of simple comfort food.
Arguably best known for its macaroni and cheese and ketchup, it also owns Oscar Mayer hotdogs, Ore-Ida french fries, Kool-Aid, Jell-O, Lunchables, Philadelphia brand cream cheese, and more. These are consumer go-to products. The benefit of brand names like these is that shoppers know the quality and consistency they are getting every time, which is why they willingly pay up for them.
It's partially why Kraft Heinz stock is up 8% so far this year and the S&P 500 is down 18%. Investors are betting that even though the highest inflation rates in 40 years are squeezing consumer wallets, people will stick with the company's products regardless.
NASDAQ: KHC
Key Data Points
Kraft Heinz is also trying to control costs in different ways, such as by cutting its promotional activity. While some analysts see that as a somewhat bearish move as it could decrease consumer awareness of a product, the company's portfolio of brands is already so well known and popular with consumers that any decline would be minimal.
The merger of Kraft and Heinz in 2015 did take a toll on the business for years, but the combined company has done a good job of turning its business around, helped along by pandemic conditions. Its predictability, though, coupled with a dividend that currently yields 4.1% annually, makes Kraft Heinz an attractive stock for retail investors looking for shelter in any potential market storm.
