2 Consumer Staples as Defensive Stocks

Author: Nikki-Lee Birdsey

Estimated read time: 3 minutes

Publication date: 31st Mar 2020 09:56 GMT+1


Despite the dramatic swings in the market due to the Covid-19 pandemic, stocks rose again Monday, continuing last week’s bounce. On Sunday, President Trump announced social distancing measures for U.S. citizens would remain in place until 30 April, backing off from his earlier position that the U.S. would return to business as usual by Easter. The U.S. policy response to the pandemic and resulting economic crisis is followed closely by investors.

Confirmed cases of Covid-19 have soared to more than 700,000 globally with 32,000 deaths, according to John Hopkins data. New York City, an epicenter for the outbreak, reported is largest one-day increase in deaths, from 237 to 728.

Despite these rapidly changing developments, the Dow had a 12.8% gain by Friday last week. The three major indices continued to rise on Monday 30 March, with the S&P 500, Dow and Nasdaq up more than 2%. But will these gains last? Market watchers and investors agree that more volatility is on the horizon with no evidence of Covid-19 abating in major economic centers around the world.

Consumer staples stocks are comprised of companies that produce and sell things that are considered essential for everyday use. These include food, beverages, household goods, hygiene products and other items that consumers will continue to buy in times of financial difficulty. Consumer staples are considered a defensive stock, or a stock that provides stable earnings despite market fluctuations because there is a constant demand for their products. (For more, see also: How to Invest in a Recession.)

As restrictions on businesses continue in an effort to stop the spread of Covid-19, businesses that are a consumer staple will remain open to meet the public’s needs.

 

2 Consumer Staples to Consider

Target Corp (NYSE: TGT) operates general merchandise and food discount stores as well as a high-functioning, integrated online business. Target sells general household goods, including essential items, as well as food such as produce, dry grocery, and frozen food at discounted prices. Target reported revenue growth of 3.6% and adjusted diluted EPS growth of 18.4% for its full 2019 financial year, which ended 1 February 2020. Its 12-month trailing total return was 27%, and as of Monday 30 March, 2020 the stock was up 2.02%.

Costco Wholesale Corp (NASDAQ: COST) operates membership warehouses in the U.S., Canada, U.K., Mexico, Japan and other countries. Costco’s merchandise includes food, beverages, appliances, cleaning supplies, health and beauty products, electronics and pharmaceutical products. The company also offers the sale of bulk items. Consumers are turning to this retail staple to stockpile essential items during the Covid-19 pandemic uncertainty. Costco has a 12-month trailing return of 21.3% in contrast to the S&P 500’s 12-month return of -13.5%. As of midday 30 March, 2020, the stock was up 1.84%.


Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.com. The observations he makes are his own and are not intended as investment or trading advice.