Investors should keep an eye on consumer staples even as markets improve.
Though people are focusing on more exciting securities, consumer companies are trading cheaply and have a bright future, says David Winters, CEO of Wintergreen Advisors in Milwaukee, WI.
He adds people should focus on finding “well-run companies that capitalize on long-term [global] growth.” Take Coca-Cola and Nestle, he says, which are both low-risk investments that have significant upsides due to their international appeal.
Coca-Cola, in particular, is a household name. The company operates “almost everywhere in the world” and has a brand that people from every background love, says Winters. “But what’s interesting is its valuation—which had been very high—has come down because of concern over [demand in] emerging markets.”
“Yet, [investors] get paid about a 3% dividend, higher than you would receive on a 10-year Treasury Bill or bond,” he adds. Investors also benefit from volume and pricing growth since the company has become more efficient.
That’s because Coca-Cola has continually evolved its product mix to include juices and diet offerings, such as Smartwater. It has capitalized on the health wave.
However, its traditional beverage is still considered a treat, Winters adds. The company has “created a diversified portfolio of brands, which has reduced its risk….It has been around since the 1880s and will be forever. [It’s] extremely well-positioned.”
Further, Coca-Cola buys back “an enormous amount of stock,” says Winters. And due to its brand strength, investors can enjoy inflation protection; the company could raise its prices and sales volumes likely wouldn’t fall.
He’s enthusiastic about consumer demand in emerging markets due to income growth. “As people get wealthier, they eat and drink better,” says Winters.
Another successful consumer company is Nestle, a food industry giant that “has a couple fabulous businesses,” says Winters. These include chocolate, coffee and infant milk formula. Nestle also has a large stake in L’Oreal.
“It’s a very shareholder-oriented company,” adds Winters. “The stock [may] go out of favour, but it has long-term potential and [people] get paid a nice dividend [while] wait[ing].” Like Coca-Cola, Nestle will also benefit from its healthier offerings such as Boost beverages and Lean Cuisine dinners.