Consumer Staples Positioned Well for the Recovery
Levolor blinds, Hot Wheels and fragrances such as Wild Elixir could be leading Americans out of recession in 2011.
Companies that make such products tend to excel as consumers gain confidence and begin to treat themselves to discretionary items whose purchase didn't seem pressing in the midst of an economic downturn. Beauty products are an example of goods that usually gain in sales as the economy perks up.
"In an economic recovery -- which we're 'sort of' in now -- the more discretionary consumer names are the outperformers," said
The reason for her "sort of" caveat is the nagging problem of high unemployment that can't be disregarded. Yet there has been talk of companies doing more hiring and investing in 2011, she notes, and many economic indicators look promising.
Her following stock recommendations are based on a belief that consumer discretionary activity will gradually be picking up speed:
The less exciting side of the consumer equation involves those companies that deal with "must-have" consumer staples, which includes stocks in common household products, prescription drugs, discount chains, food and beverages.
These sturdy investments led the way during the depths of the recession but have lost some steam lately.
Even though consumer staples may not be as popular as they once were, hedging bets in a quirky recovery makes some sense. After all, investing is all about diversification, and owning stocks of companies with trusted names and hard-to-replicate distribution networks can be reassuring.
"While they don't capture the imagination, consumer staples do have their finger on the pulse of the nation and appeal to a variety of investors looking to familiar names," said
A good way to invest in such bellwether stocks, Tjornehoj believes, is
Tracking the MSCI U.S. Investable Consumer Staples Index, its low-turnover portfolio of 113 stocks emphasizes nondiscretionary North American consumer staples with dominant market shares and stable cash flows. While its portfolio consists of North American based firms, the majority generate a significant portion of sales and profits abroad.
Its largest holdings include
Some other ETF alternatives are Consumer Staples Select Sector SPDR (XLP), iShares S&P Global Consumer Staples (KXI) and iShares Dow Jones U.S. Consumer Goods (IYK).
"Investors should hold on to the consumer staples companies that they have in their portfolios, or even add to their positions, because of the current economic landscape," said
Consumer staple stocks feature goods that are needed day-to-day, he said. Names such as
Just don't expect them to take off like a rocket even if the economy does, because that's not what they're all about.
"In 2008, when the stock market was really bad, the Proctor & Gamble and Clorox stocks of the world were its heroes because they didn't decline as much as other stocks," cautioned Weiser. "Yet they're contrarian to the market, so when the market is up those stocks can underperform."
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