Oil prices are on the rise once again, as tensions between the United States and Iran escalated earlier this week. Consumer sentiment improved slightly in August but is still at historic lows as concerns grow over sky-high inflation and uncertainty over the situation in the Middle East.
Investors fear that a surge in oil prices could further see a jump in inflation, which could worsen the nation’s already shrinking economy.
We, thus, recommend buying three defensive stocks from the consumer staples sector, namely, Archer-Daniels-Midland Company ADM, WD-40 Company WDFC and Sysco Corporation SYY.
Consumer Sentiment Low
The University of Michigan reported that its Consumer Sentiment Index came up with a final reading of 51.7 in August, slightly higher than the preliminary reading of 51. However, it was still down from July’s reading of 55.2 and a sharp 11% decline from the year-ago levels.
The survey showed that sentiment was low among both older consumers as well as new lower-and-middle income groups.
Higher oil prices since the beginning of the U.S.-Iran war in late February have kept inflation elevated. Inflation dropped slightly in June and July after oil prices eased. However, a further escalation in tensions in the Middle East has seen oil prices rising again.
With no signs of either of the warring nations trying to go for any negotiations, consumers feel oil prices could surge further and keep inflation elevated.
The latest consumer sentiment print comes days after a report from the Conference Board showed that consumer confidence dropped to 89.4 in August, the lowest level since January, from a downwardly revised 90.2 in the month earlier. The August reading was also sharply lower than the analysts’ expectations of a reading of 90.2.
The Federal Reserve is also contemplating a rate cut of 25 basis points this year but has so far adopted a wait-and-watch stance. A rate hike will lead to higher borrowing rates, which could further weigh on consumer spending. Low consumer sentiment can keep markets volatile for a longer period.
3 Low-Beta Consumer Staples Stocks With Upside
Archer-Daniels-Midland Company
Archer-Daniels-Midland Company is one of the leading producers of food and beverage ingredients as well as goods made from various agricultural products. ADM processes oilseeds, corn, wheat, cocoa and other feedstuffs. It also engages in the manufacturing, sale, and distribution of products like natural flavor ingredients, flavor systems, natural colors, proteins, emulsifiers, soluble fiber, polyols, hydrocolloids, natural health and nutrition products, as well as other specialty food and feed ingredients.
Archer-Daniels-Midland Company has an expected earnings growth rate of 52.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the last 60 days. Archer-Daniels-Midland Company has a beta of 0.62 and a current dividend yield of 2.56%. ADM currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
WD-40 Company
WD-40 Company is a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world. EDFC offers multi-purpose maintenance products, including aerosol sprays, non-aerosol trigger sprays, and in liquid form under the WD-40 Multi-Use brand for various consumer uses; and specialty maintenance products that comprise penetrants, degreasers, corrosion inhibitors, lubricants, and rust removers under the WD-40 Specialist brand name.
WD-40 Company has an expected earnings growth rate of 7.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.2% over the last 60 days. WDFC carries a Zacks Rank #2. WD-40 Company has a beta of 0.27 and a current dividend yield of 1.91%.
Sysco Corporation
Sysco Corporation markets and distributes a range of food and related products primarily to the foodservice, or food-away-from-home, industry. SYY serves approximately 730,000 customer locations, including restaurants, health care and educational facilities, lodging establishments and other foodservice customers.
Sysco Corporation has an expected earnings growth rate of 10.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.4% over the last 60 days. SYY has a Zacks Rank #2. Sysco Corporation has a beta of 0.63 and a current dividend yield of 2.71%.
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This article originally published on Zacks Investment Research (zacks.com).
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