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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Are these the best consumer staples stocks to watch?

Consumer staples stocks are popular defensive portfolio investments, with a unique set of advantages and drawbacks. These five are the largest on the FTSE 100.

consumer staples Source: Bloomberg

Consumer staples stocks are shares in companies which specialize in selling daily essentials — food and drink, hygiene and household products, cosmetics, alcohol and tobacco. These stocks are classified as ‘defensive’ — consumers will continue to buy them regardless of the state of the economy — meaning the companies benefit from inelasticity of demand.

These are non-cyclical businesses, which means sales, revenue and at least some profit is generally expected. However, consumer staples stocks are unlikely to make headlines for capital growth or explosive revenue increases.

Instead, they offer low price volatility, dividends, and defensive positioning within a wider portfolio. And a key trade-off is that consumer staples companies can be better able to pass on inflation-matching cost increases to customers — this is a huge advantage in inflationary periods which is becoming more apparent.

Given the perceived lower risk, lower return, consumer staples stocks are often popular with investors closer to retirement, or else investors starting to venture outside the diversification offered by ETFs.

Perhaps a core advantage that is often ignored is the heritage and branding power of most larger consumer staples companies. Many have been in operation for decades or more due to the defensive nature of the sector, and this can have a positive ongoing effect on investment attractiveness.

Of course, past performance is not an indicator of future returns.

Top consumer staples stocks to watch

The following five shares are the largest FTSE 100 consumer staples stocks by market capitalisaiton. There is an element of subjectivity to inclusion as there is no standardised ‘consumer staples’ definition.

Unilever

Unilever is a very well-known transnational consumer staples business which produces a dizzying array of products including food, drinks, cleaning agents, beauty and personal care products. Some of its well-known brands include Dove, Ben & Jerry’s, Cornetto, Domestos and Hellmann's.

Full-year 2023 results saw underlying sales growth at the FTSE 100 company rise by 7% — with a turnover of €59.56 billion. Encouragingly, the business’s underlying operating margin rose by 60bps to 16.7%. CEO Hein Schumacher argues that ‘2023 Full Year results show an improving financial performance, with the return to volume growth and margins rebuilding. We are moving with speed and urgency to transform Unilever into a consistently higher performing business.’

Unilever shares have remained almost flat over the past five years, with some investors arguing it has underperformed the wider market. However, it is in the midst of a turnaround plan; Schumacher took the reins in July 2023 noting that it is not ‘reaching its potential’ and that productivity and returns have ‘under-delivered.’

Diageo

While some consider alcohol not to be a consumer staple, it is a consumer product that people tend to buy regardless of the wider economic climate. Diageo is one of the largest alcoholic drinks manufacturers in the world, and controls a premium brand portfolio covering Johnnie Walker, Guinness, Smirnoff, Baileys, Captain Morgan, Tanqueray and Gordon's.

In recent interim results, CEO Debra Crew did note that ‘the first half of fiscal 24 was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year…looking ahead to the second half of fiscal 24, despite continued global economic volatility, we expect to deliver improvement in organic net sales and organic operating profit growth at the group level.’

For context, an unfavourable foreign exchange market and the declines in Latin America and the Caribbean saw net sales decline by 1.4% to $11 billion. Accordingly, operating profit fell by 11.1% to $3.3 billion — though this fall was just $205 million when excluding the LAC region.

In more bad news, the stock has fallen to its lowest level in four years as news of China’s ‘anti-dumping’ investigation into brandy from the EU heats up.

British American Tobacco

Debate it if you must, but tobacco is also commonly thought of as a consumer staple. Smokers and vapers typically buy their favourite product — with the addictive component of nicotine an ethical question for individual investors to consider.

British American Tobacco is one of the world’s biggest tobacco companies, with a significant brand portfolio of famous names. However, the business is dealing with changing consumer preferences and government intervention. It wrote off circa £25 billion in value of its US-based cigarette portfolio in December 2023 — while the UK is planning to implement a ban on disposable vapes soon.

For context, revenue fell by 1.3% in full-year results (though rose by 3.1% at constant rates). ‘New category’ revenue grew by 21% — and revenue from non-combustibles now makes up 16.5% of the group’s overall revenue. Best of all, new categories achieved profitability in 2023 after years of losses and two years ahead of target.

But longer-term, combustibles revenue is expected to continue to fall, while some investors think replacing this revenue with vaping may be harder than the company expects. CEO Tadeu Marocco contends that the ‘refined strategy commits us to 'Building a Smokeless World', a predominantly smokeless business, with 50% of our revenue from Non-Combustibles by 2035.’

Reckitt Benckiser

Like Unilever, Reckitt Benckiser has been effectively flat over the past five years. The company owns many famous brand names, including Dettol, Strepsils, Veet, Gaviscon, Calgon and Air Wick. It’s widely assumed that consumers are prepared to pay a price premium for cleaning products and medications compared to other categories.

In Q3 results, Reckitt saw like-for-like net revenue growth rise by 3.4%, led by strong a broad-based growth of 6.7% across its hygiene and health segments. While overall volume declined by 4.1% year-over-year, the company remains the market leader in the US nutrition business — and with its recent strategic update, the company expects to target sustained mid-single digit life-for-like sales growth in the medium term.

In further good news, the company has initiated a £1 billion share buyback programme. CEO Kris Licht notes that ‘we are firmly on track to deliver our full year targets, despite some tough prior year comparatives that we continue to face in our US Nutrition business and across our OTC portfolio in the fourth quarter.’

Haleon

Like Reckitt Benckiser, Haleon is a consumer healthcare multinational which controls its own famous brand portfolio — including Sensodyne, Panadol and Centrum vitamins. And it’s widely regarded as one of the largest over-the-counter medicines operators in the world.

Spun off from GSK, the company could remain a stalwart of the FTSE 100 for decades to come. In Q3 2023 results, Haleon saw 5% organic revenue growth, while adjusted operating profit rose by 8.8% at constant currency rates. And the company saw an adjusted operating profit margin of 24.6%.

CEO Brian McNamara enthuses that the results ‘demonstrate continued strong momentum across the business. Despite challenging markets, we have delivered another quarter of strong organic growth…our FY guidance remains unchanged and we expect to deliver strong growth in both organic revenue and adjusted operating profit constant currency.’

How to invest or trade in consumer staples shares with us

  1. Learn more about consumer staples shares
  2. Open an account with us or practise on a demo
  3. Select your opportunity
  4. Choose your position size and manage your risk
  5. Place your deal and monitor your trade

You can either invest in shares directly or trade using spread betting or CFDs to benefit from leverage.

Keep in mind, leverage means you can gain or lose money faster than expected. Because your position size is far greater than your deposit, you could lose more money than you put in. Be aware also that past performance is not an indicator of future returns.

Learn more about the differences between trading and investing here.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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