5-Star Consumer Stocks to Prepare for Political Gridlock

Conventional wisdom among Wall Streeters holds that political gridlock, where no one party controls both the executive and legislative branches of government, is good for the stock market. The rationale behind is that gridlock prevents Washington from doing anything too terribly drastic, preserving market stability -- seemingly sound logic.

But according to a recent report from Sam Stovall, chief investment strategist at S&P's Equity Research, just the opposite is true -- if past performance is any indication, it's political unity, not discord, that proves most beneficial to stocks.

According to Stovall's findings, the S&P 500 has historically done fine when the president's party controls both the House and the Senate, or in partial gridlock, where the president's party controls neither the House nor the Senate. But in years of total gridlock, where the president's party controls either the House or the Senate, but not both, the S&P has performed significantly worse, rising on average only 3.5% a year since 1945.

So why does total gridlock have such a negative effect? Possibly because it creates market uncertainty -- and there's nothing that scares investors away like uncertainty.

With elections looming just over the horizon, the results could mean trouble ahead for many sectors. Fortunately, gridlock isn't bad for everyone; Stovall's research shows that consumer staples and consumer discretionary stocks actually do quite well in these political conditions.

Perhaps investors find it easier to put their faith in these tangibles when the economic climate is uncertain; or maybe they think they're less likely to be affected one way or another.

So what consumer stocks should you be looking at? To get the answer, we created a list of undervalued consumer stocks, when comparing the current price to the average analyst target price (used as a proxy for fair value). These stocks are trading below average analyst target price, indicating that analysts think there may well be more upside to them.

Not that analyst ratings are always 100% accurate, but they do offer a good jumping-off point for your own analysis. (Click here to access free interactive tools to analyze these ideas.) 

To refine the quality of the list, we looked to the Motley Fool community's ratings, and only focused on stocks with five-star ratings from the members of their CAPS community.

Target price data sourced from Finviz. The list has been sorted by discount to average analyst target price.

Interactive Chart: Press Play to see how the market caps for all these stocks have changed over the last two years.

Disclosure: Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.