For the last two weeks, investors have been indexing their economic sentiment over one thing: The new tariff policies instituted by U.S. President Donald Trump.
Rhetoric out of the White House seems to change by the hour. At any given moment during the day, it's not uncommon to hear that the President and his staff are working relentlessly to renegotiate trade deals with a number of countries. But mere hours later, it's not uncommon to hear that some dialogues are progressing but that nothing has been finalized.
As a result, investors are left in a bizarre position of wanting to be hopeful, but ultimately still feeling confused. During times like these, it's natural for investors to become overly vigilant -- almost obsessed with every move the market is making and trying to figure out why. As chaos and panic-driven sell-offs continue to dominate the stock market, I'm doing my best to find a healthy mix of quality and value.
A good place to start is by taking a look at some of the moves Warren Buffett has made over the years while leading Berkshire Hathaway's portfolio. Below, I'll break down one particular sector that's managed to hold up well during this time of outsized volatility. From there, I'll assess one of Buffett's longest-standing holdings and make the case for why this specific stock looks really attractive right now.
Consumer defensives are holding up well despite market chaos
I'll admit right off the bat that the consumer goods industry is not that exciting. Unlike high-growth areas such as software or biotech, consumer goods companies are more mundane and often sell commoditized products.
Although that might make the consumer goods industry less attractive for some, a contrarian would argue that these businesses are attractive precisely because they are relatively predictable and tend to offer reliable returns -- even if those returns lag what a growth stock might offer.
The chart above illustrates some really interesting trends. Investors can see that so far this year, the Vanguard Consumer Staples ETF has significantly outperformed the S&P 500 -- which has declined about 11% as of April 16. Taking this a step further, look at the magnitude of the drops seen across the Vanguard fund and the S&P 500 in early April, when Trump announced his tariffs.
While the Vanguard Consumer Staples ETF did drop, its decline was far less steep than what was seen in the S&P 500. A big reason for this is that the S&P 500 tends to experience outsized movements these days based on an extremely small cohort of stocks -- namely, big tech stocks such as Nvidia, Apple, and Microsoft.
It's not enough to say that tariffs are the sole reason for the precipitous drop in the S&P 500. After all, consumer goods companies are exposed to tariffs as well. Rather, the big takeaway from the trends above is that consumer staples businesses -- while exposed to some tariff-related risk -- are more insulated than a high-tech growth stock. This dynamic goes back to my original idea that some investors actively seek out exposure to consumer staples stocks due to the defensive nature of the underlying business.
Image source: Getty Images.
This Warren Buffett Dividend King stock looks really attractive right now
Warren Buffett is known to invest in consumer goods stocks. However, not all of his positions have the same conviction. For example, Berkshire's largest position is Apple. While Apple has been a home run for the Berkshire portfolio, Buffett has been steadily trimming this position for several quarters now.
While some might be surprised by these moves given Apple's fiercely loyal customer base and the tailwinds artificial intelligence (AI) presents for the company's future, Buffett now looks like a genius for selling Apple when he did, since the stock has gotten severely punished during the ongoing Nasdaq sell-off.
Berkshire also had a short-lived position in cosmetics company Ulta Beauty over the past year. However, Ulta's inconsistent growth trends didn't bode well for Buffett's confidence -- especially given the uncertainty of the macroeconomic picture both before and after the recent presidential election.
One consumer goods stock that Berkshire has owned for decades is Coca-Cola (KO 1.77%). While Coca-Cola's revenue and profit growth may not be electrifying, the company has been extremely consistent over the course of many years. One of the strongest pillars supporting Coca-Cola's durability over the long term is its diversified portfolio of beverages, which spans soda, water, sports drinks, coffee, and tea.
NYSE: KO
Key Data Points
The consistent growth in Coca-Cola's business has provided the company with a high degree of financial flexibility, which it has used to reward investors. Coca-Cola has paid and raised its dividend every year for more than 50 years, putting the company in an elite class known as the Dividend Kings.
Remember to think long-term
If you needed any more evidence around Coca-Cola's investment reliability, just check out the chart below. Since 2000, Coca-Cola stock has achieved a total return of 394%. Of note, the gray columns represent various U.S. recessionary periods. While shares of Coca-Cola did drop during these periods, the declines were fleeting -- ultimately with shares recovering and eventually reaching new highs.
KO Total Return Level data by YCharts.
While the near-term direction of the stock market is anyone's guess, I can say with confidence that even during times of economic volatility, people will still be purchasing beverages during trips to the grocery store. Coca-Cola's variety of offerings and its brand recognition make me confident that the company will manage the current storm and endure ongoing macroeconomic headwinds.
The encouraging trends explored throughout this piece, and the relative insulation from a constantly changing economic picture, make Coca-Cola stand out right now. I think it is a great stock to own during various economic cycles, and investors may want to consider adding shares of Coca-Cola to their portfolios right now.
