Fears of a recession are looming and with high inflation, high gas prices and a bear market in multiple asset classes, why wouldn’t those concerns exist? Recession worries have taken a toll on most stocks, but especially on consumer-based stocks. There’s no hiding either; even the best consumer stocks have taken a hit.
While bear markets incite fear and negative emotions out in investors, they also create opportunities. When we look at some of the top consumer brands in the world, they’re still intact. That’s even though the stock prices are not intact.
So now that gives bulls an opportunity to buy some of the best consumer stocks in the market, even at a steep discount. This is even more true for the long-term investor.
|CMG||Chipotle Mexican Grill||$1,368.04|
Best Consumer Stocks: Nike (NKE)
Nike (NYSE:NKE) is one of the most recognized and strongest brands in the world. Across various sports, cultures and regions, Nike is a dominant company. However, that has not prevented its stock price from being crushed.
At its recent low, shares were down about 45%. However, these are the types of declines that create opportunity for long-term investors. Of course, the biggest risk to Nike is a global recession. If it comes, the entire stock market will come under further pressure; it won’t be a company-specific issue.
As it stands, though, Nike looks set for solid growth. Analysts expect roughly 20% earnings growth this year and next year. If that’s the case, then it’s hard to imagine the stock having significant downside from here.
If it does fall further and Nike does grow its earnings in that manner, then long-term investors will be getting a steal.
Lululemon Athletica (LULU)
Similar to Nike, Lululemon Athletica (NASDAQ:LULU) has become a leading premium consumer brand over the last few years. As a result, it’s become one of the best consumer stocks out there as well.
When the pandemic hit in 2020, Lululemon saw a revenue shock hit its business — as did most businesses. It’s hard for a retailer to generate business with physical locations closed, right? Well, Lululemon’s direct-to-consumer approach led to a rapid rebound in sales. Even amid a global pandemic and a shutdown across the world, customers still wanted comfortable, premium clothes.
Looking at the forecasts now, nothing appears to have changed. Analysts expect 23% revenue growth and 22% earnings growth this year. Next year calls for double-digit growth in both measures as well.
At 36 times this year’s earnings, Lululemon stock isn’t necessarily cheap by most investors’ standards. However, after a peak-to-trough decline of almost 50%, the valuation has come down quite a bit.
Best Consumer Stocks: Apple (AAPL)
Like Nike, Apple (NASDAQ:AAPL) is one of the most well-recognized brands in the world. Despite its peak-to-trough decline of 29%, investors need to take solace in the fact that shares are now down less than 15%.
Not only is that better than all of its FAANG peers — both the percentage off its high and the peak-to-trough decline — but it’s better than the Nasdaq. Apple, the top component in the Nasdaq, is outperforming the index.
Despite its fall, it still commands a $2.5 trillion market capitalization. It also helps that Apple has a perennial bull in Warren Buffett, who keeps buying the dip. Surely, he is not alone either — both when it comes to individual investors and funds.
Furthermore, the company has a stellar business. The Products division gets most of the credit because of Apple’s iPhones, iPads and other well-known products. But did you know that its Services unit is growing revenue almost three times faster than the Products division and that it’s twice as profitable?
In turn, that’s what’s keeping Apple stock in demand — make it one of the best consumer stocks out there.
Shortly after the novel coronavirus pandemic hit the U.S., we went into lockdown as stores, buildings and virtually everything not deemed essential was closed. But then there were drive-thru lines wrapped around Starbucks (NASDAQ:SBUX).
As much flack as this company seems to take at times, it’s hard to argue with its business. Starbucks may be out of its high-growth days, but there’s no denying that it has become a staple in millions of consumers’ lives. Better yet, Starbucks appeals to multiple demographic ages. You’re likely to see a Baby Boomer ordering a coffee right after a Millennial or Generation Z teen orders the latest Frappuccino concoction.
Forecast to grow sales 11% this year and 10% next year, Starbucks is anything but done. And even if it were, the company has made a serious commitment to returning capital to shareholders and paying a dividend yield. This company will be a cash-cow for years and years to come.
Best Consumer Stocks: Chipotle Mexican Grill (CMG)
Like Starbucks, Chipotle Mexican Grill (NYSE:CMG) is steadily gaining momentum as a top consumer brand in the US. The stigma of food safety dogged Chipotle for years, but new management and several years without any notable issues has this stock back on the right track.
Impressively, the stock has held up better than some of its peers amid the most recent pullback. Shares are down “just” 30% from the all-time high. While that’s not much of an accolade in most cases, it is right now as many stocks have fallen by 50% or more.
The one drawback here is the valuation. At 40 times earnings, Chipotle stock is not exactly cheap. That’s particularly true if this bear market continues to weigh on US equities.
That said, Chipotle has solid growth expectations. Consensus estimates call for 16.5% revenue growth this year and 14% growth next year. On the earnings front, estimates call for 25% growth in 2022 and an acceleration up to 33% growth in 2023.
That doesn’t look like a recession to me.
Bears will argue that Yeti (NYSE:YETI) is susceptible to margin pressure and increased competition. To some extent, that risk does exist. However, the company has also proved itself to be a formidable leader when it comes to premium accessories. Its coolers, mugs, tumblers and more have become a staple piece among travelers, beach-goers and anyone who enjoys a warm or cold beverage staying warm or cold.
Like Chipotle, it’s almost as if there are no recession worries for Yeti. Analysts expect almost 20% revenue growth this year and 15% growth next year. Earnings estimates call for double-digit growth in both years too — including 20% growth in 2023.
As for margins, both gross and net margins continue to trend higher over the last several years. Five years ago, Yeti had gross margins in the mid-40% range. Now they are in the mid-50% range. Profit margins have gone from negative five years ago to flat in 2020 to currently about 15%.
At 15 to 16 times earnings and double-digit growth, Yeti seems like one of the best consumer stocks to buy right now.
Best Consumer Stocks: Hershey (HSY)
Hershey (NYSE:HSY) may not be the name readers expected this list to end with. But whether we find ourselves in a recession or not, this company may remain in demand. When times are good, people buy candy. When times are bad, it’s an affordable splurge to enjoy.
Known best for its brands like Hershey’s, Kit-Kat, Reese’s, York, Twizzlers and Bark Thins, Hershey also has its less well-known (but healthier options) including Skinny Pop, Paqui and Pirate’s Booty. As a result, the company dominates the list of most popular brands.
The stock is down just 5% from its all-time high, so if the market really starts to sell off, this one could be susceptible to more losses. However, the relative strength is undeniable at this point.
Hershey stock is a bit expensive at 27 times earnings, while the dividend is a bit low at 1.6%. In that sense, HSY stock isn’t for everyone, but it does have some attractive qualities and clearly, investors are finding it attractive as it’s barely off the highs.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.