Yahoo Finance The 10 Biggest Consumer Staples Stocks
The consumer staples sector is popular with investors who seek stability through a wide range of selling conditions. It is home to some of the world's biggest, most valuable brands and involves products like tissue paper, shampoo, and soda, which tend to stay in high demand even during recessions.
There are 33 companies that make up the S&P 500 consumer staples sector, and they span industries from beverage manufacturers to supermarket chains to tobacco giants. Together, they comprise a critical part of the U.S. economy, with a combined market capitalization of more than $3 trillion.
Below, we'll take a closer look at the 10 largest consumer staples stocks by market capitalization.
Grocery retailers are an example of consumer staples stocks. Image source: Getty Images.
What is a consumer staples stock?
Consumer staples are products that have two defining characteristics: They are used frequently, and they occupy a favored position in the household budget. These are products that a shopper consumes on a weekly or even daily basis and that they would tend to continue purchasing even if their income situation worsened during a recession.
The main classes of consumer staples are food, beverages, home and personal care, alcohol, and tobacco. Product examples include toothpaste, soda, shampoo, toilet paper, and laundry detergent. The industry covers both the manufacturers of these products and the retailers that sell them to the public.
These stocks differ from consumer discretionary stocks, which involve products that are very sensitive to moves in the wider economy. These are goods and services that tend to jump during boom times but are among the first things that consumers cut from the budget when recessions hit. Discretionary stock companies sell products like automobiles and luxury apparel and services such as travel bookings and full-service dining experiences.
Why invest in consumer staples stocks?
The main reason investors are attracted to the consumer staples sector is its relative strength during an economic downturn. While most other industries tend to contract sharply, a consumer staples business is more stable. In part because of that stability, stocks in this segment tend to pay generous dividend yields that have a long history of rising each year.
Those two factors help explain why consumer staples stocks are often referred to as "defensive" or "recession proof." The trade-off investors have to accept is that in most cases, this market segment underperforms other areas like technology and consumer discretionary during economic boom times. Yet that's an attractive option if you're seeking stability during market downturns, a goal that applies to all but the most aggressive investors.
The 10 biggest consumer staples companies
Here are the 10 largest companies that comprise the consumer staples segment as ranked by market capitalization, or the value that investors have assigned the business.
Company | Description |
|---|---|
Walmart (NYSE: WMT) | Retailer engaged in selling groceries and home supplies |
Procter & Gamble (NYSE: PG) | Consumer products manufacturer selling merchandise in the laundry, personal care, baby care, and home cleaning categories |
Coca-Cola (NYSE: KO) | Beverage manufacturer selling sparkling and still-water drinks |
PepsiCo (NASDAQ: PEP) | Beverage and snack food manufacturer |
Philip Morris International (NYSE: PM) | Tobacco company selling cigarettes and smoke-free products to markets outside the United States |
Costco (NASDAQ: COST) | Warehouse club retailer selling groceries, home supplies, and consumer electronics |
Altria Group (NYSE: MO) | Tobacco company marketing products in the United States |
Mondelez International (NASDAQ: MDLZ) | Global snack food company |
Estee Lauder (NYSE: EL) | Makeup, perfume, and skin care manufacturer |
Colgate-Palmolive (NYSE: CL) | Toothpaste, toothbrush, and cleaning product manufacturer |
Here are some highlights from each of these consumer staples giants.
1. Walmart
Walmart is the world's biggest retailer, handling more than half a trillion dollars of annual revenue. Consumers shop in its supercenters and neighborhood markets to fill their grocery needs and to stock up on other consumer staples like cleaning and pet supplies, beauty aids, and baby products.
The retailer's strength comes from its low-cost operating approach that is supported by its massive sales base. As the industry's biggest player, it enjoys advantages like economies of scale and negotiating power that allow it to pass along lower prices than peers such as Kroger (NYSE: KR). Its connection with consumers, meanwhile, gives Walmart a platform to launch and support its own company-branded products.
Walmart's transition into more of a multichannel retailer that competes online as well as through its physical store network has helped it continue growing, but with lower profitability than investors have seen in the past. The company makes up for that sluggish growth profile in part with a dividend that has risen for more than 40 consecutive years.
2. Procter & Gamble
Procter & Gamble has for decades manufactured many of the world's leading consumer staples brands. From Tide detergent to Gillette razors to Head & Shoulders shampoo, its products can be found in most households both in the U.S. and in almost every other country.
P&G's market position is staggering in many of these segments. As of mid-2019, it was responsible for 20% of the global hair-care market, 25% of laundry detergent, and 25% of all global sales of diapers and baby wipes. P&G's annual sales are far lower than Walmart's -- but over the long term, it has averaged a high-teens profit margin compared to the retailer's low-single-digit profitability.
P&G endured a long period of sluggish growth after it began a transformation strategy in 2012, aimed at laying the foundation for faster sales gains and improved profitability. The company subsequently gave investors a few reasons to be more optimistic, with sales accelerating when compared to key competitor Kimberly Clark (NYSE: KMB). That steady market share boost is a critical part of P&G's goal to consistently deliver robust annual returns to investors. The stock is also known for its healthy dividend, with a payout growth streak that sits at more than 60 years.
3. Coca-Cola
The scale of Coca-Cola's business is hard to overstate. It not only markets many of the world's biggest beverage franchises (e.g., Coke, Sprite, Dasani, Powerade) but also maintains a global distribution network that's essentially impossible to challenge. Those advantages help explain how the company can account for 1.9 billion servings, or a whopping 3% of all beverages consumed worldwide each day. It runs a fantastic business, too, with operating earnings consistently trouncing those of smaller peers.
Coca-Cola is facing major business challenges as consumer preference shifts away from drinks and ingredients that are perceived to be too sugary and/or loaded with unnatural ingredients. That demand move opened the door for challengers like National Beverage (NASDAQ: FIZZ) and its LaCroix sparkling water brand to gain market share. National Beverage posted a 20% volume increase in 2018 compared to Coke's 1% uptick in the U.S.
Yet the beverage giant's strength lies in its ability to adjust to shifting consumer preferences. Those moves ensure that rivals can't turn short-term growth opportunities into significant market share gains against Coca-Cola's portfolio of beverages. Coke's dividend streak, which stretches back more than five decades, is just one reason many investors are attracted to this defensive stock.
4. PepsiCo
It's often mentioned alongside its larger beverage competitor, Coca-Cola, but PepsiCo has an impressive global business in its own right. Its brand portfolio includes hit beverages like Pepsi, Tropicana, and Mountain Dew, in addition to a wide range of snack franchises such as Doritos chips and Quaker cereal products. PepsiCo and Coca-Cola each accounted for roughly 20% of all beverage retail sales in the U.S. in 2018.
Pepsi faces some of the same challenges as Coke on the beverage side of the business, but its snack segment helps steady the broader business. Investors who buy the stock today are expecting the consumer staples titan to navigate through demand issues just as it has during past industry disruptions. In any case, they are highly likely to collect significant direct shareholder returns. Pepsi routinely spends almost all of its annual free cash flow on a mixture of stock repurchases and its hefty dividend payment.
5. Philip Morris International
The tobacco industry is in steady decline, but Philip Morris, one of the world's largest producers of cigarettes and other nicotine-based products, still earns a tidy profit from their sale. In fact, its business is a textbook example of pricing power at work. Philip Morris' sales volumes have been declining, but revenue still improves thanks to rising prices. The company, which sells only to markets outside the U.S., earned $7.9 billion on $29.6 billion of revenue in fiscal 2018, equating to a profit margin of a whopping 27% of sales.
There's no shortage of risks surrounding this business, including negative attitudes toward smoking, falling demand for cigarettes, and concerns that e-cigs might attract more regulation by governments around the world. Yet Philip Morris has been dealing with these challenges more or less consistently for years. Investors accept those drawbacks in part because of the generous cash return program that the company promises. They're also attracted to the business's leading brands and unmatched supply chain, which allow it to withstand challenges from rivals without losing space on retail shelves.
Philip Morris pays a larger percentage of its earnings out as dividends than the 50% rate that is common among the broader consumer staples industry. That helps explain why it is among the highest-yielding stocks in this group and a favorite among income investors.
6. Costco
Costco has come a long way since its founding in the early 80s, when the warehouse club retailing model was just getting started. From nine locations topping $1 billion of annual sales in 1984, the company is now the second-largest retailer on the market, responsible for more than $150 billion of revenue each year.
Costco's subscription club business differs in several important ways from Walmart's. Most of its earnings come from membership fees, for example, which tend to be much more stable than product markups. That steadily growing income stream, meanwhile, has allowed the warehouse giant to increase profits at a time when rivals like Walmart and Kroger have seen margins shrink.
All of that success is reflected in Costco's premium stock pricing when compared to peers. To buy this stock, you'll have to pay more than you would for Walmart or Kroger. You'll get a relatively meager dividend yield compared to those retailers, too.
But many investors happily pay that premium in exchange for Costco's market-thumping sales growth, its steadier income stream, and its ability to sell staples like bulk toilet paper right alongside more profitable $400,000 diamond rings.
7. Altria Group
Altria Group is comparable to Philip Morris, but it concentrates its focus on selling top cigarette brands like Marlboro in the United States. That premium, branded focus has helped it navigate the long-term downtrend in tobacco consumption rates in richer economies like the U.S.
Thanks to rising cigarette prices and higher demand for smokeless products like e-cigarettes, Altria's revenue can hold stable even as unit volumes decline. Operating income routinely hovers at nearly 40% of sales, too.
Just as in the case with Philip Morris, investors are largely attracted to Altria's financial strength and its hefty cash return program rather than its prospect for robust growth. The stock carries one of the biggest yields among large companies, too. The payout amounts to a significant chunk of Altria's earnings but not so much that income investors need to worry about Altria sharply cutting its dividend anytime soon.
8. Mondelez
Mondelez is one of the world's biggest snack companies. It markets several iconic food brands, including Cadbury, Oreo, and Toblerone. Chances are there are at least a few of Mondelez's products in your cupboards today. A key advantage to owning this company is its geographic diversity. Mondelez generates roughly half of its sales and profits from Europe, with the U.S. market accounting for closer to 25%.
Its growth strategy aims to outpace the broader food industry by targeting consumers who are on the go and looking for convenient snacks. The approach tends to deliver solid results and higher profit margins, since consumers are willing to pay up for quality taste and snack packaging.
CEO Dirk Van de Put and his team believe that Mondelez can keep growing quickly while expanding profits at an even faster pace through a combination of innovative product releases, more targeted marketing spending, and cost cuts. Such results are only possible if Mondelez can protect its prime positioning in the food segments it dominates.
9. Estee Lauder
The massive global market for beauty supplies has allowed Estee Lauder to build an impressive business over the years. Its network of more than 25 brands spans the skin-care, fragrance, and makeup niches, which are staples in many homes around the world.
Estee Lauder's portfolio is diverse, with about 40% of sales coming from skin care, 40% from prestige makeup, and 13% from its perfume business. The company distributes these products through a network of retailers that supports the premium image it hopes to maintain. Customers can find its products in spas and salons and in travel locations including airports and cruise ships -- but usually not in discount or off-price stores. That upscale image supports hefty profit margins, with gross profitability routinely reaching 80% of sales.
The company's long-term success rests on Estee Lauder's ability to continue delivering innovative products that resonate with beauty shoppers while maintaining the premium position of its brands even during market downturns. That's a tall order, but the company has achieved that balance through many economic cycles. If it can continue satisfying customers, then its affordable-luxury approach can keep its skin-care and makeup brands firmly on the "must-buy" portion of consumers' shopping lists.
10. Colgate-Palmolive
Colgate-Palmolive is the market share leader in a massive global industry, responsible for 42% of annual toothpaste sales as of 2018. Its dominant position in that niche, and in complimentary ones like manual and electric toothbrushes, has helped it generate impressive returns for investors, with gross profit margin routinely hovering around 60% of sales.
Colgate-Palmolive's growth depends on its ability to continue satisfying customers by constantly raising the bar when it comes to quality. There's little room for disappointment in a product that users consume daily, after all.
The company has seen sales growth slow in recent years, but management has responded by cutting costs and directing the savings toward extra marketing support for its key brands. If history is any guide, those adjustments should help Colgate-Palmolive retain its massive industry lead while giving it resources to funnel steadily growing dividends to its shareholders.
What investors should know about consumer staples stocks
Investor options when it comes to consumer staples companies go far beyond the above list to include many more manufacturers and retailers of products that most households can't live without. However, this selection of the biggest players spans a healthy range of business models, product niches, and operating outlooks. Thus, if you're looking to gain exposure to consumer goods stocks, this attractive sector's most dominant companies are an ideal place to start your search.
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Demitrios Kalogeropoulos owns shares of Costco Wholesale. The Motley Fool owns shares of and recommends Monster Beverage. The Motley Fool owns shares of National Beverage. The Motley Fool is short shares of Colgate-Palmolive, Kimberly-Clark, and Procter & Gamble and has the following options: short July 2019 $55 calls on National Beverage, short January 2020 $180 calls on Costco Wholesale, and long January 2020 $115 calls on Costco Wholesale. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.
