Recession Investing: Consumer Staples

The global financial markets are facing an inevitable meltdown amid the coronavirus pandemic. Millions of people have already lost their jobs because of the deadly virus, while a slew of businesses have been forced to close.

The trend demonstrated by the non-farm payroll (NFP) numbers of the last three months indicates that the U.S. unemployment rate could reach the high single digits by the end of the year. This follows the assumption that more people will regain employment to push the rate below the current level of about 13%. Earlier on Wednesday, the International Monetary Fund released a report saying that it expects the global economy to contract by a record 4.9% this year. The report also predicts the U.S. economy to squeeze by 8% in 2020.

This is bound to have significant repercussions on investments. Short-term investors can practically try to trade the information that trickles in over the next few months by shorting the market. For instance, traders can trade NFP and other economic numbers as they are announced on a weekly or monthly basis. But from the perspective of long-term investing, things could be trickier.

Finding the best stocks to invest in amid a potential downturn in the financial markets will be challenging. However, sectors like consumer staples offer some of the most interesting options for investing in recession-resistant stocks.

So what are some of the defensive stocks that investors could look at?

Tyson Foods

Tyson Foods Inc. (NYSE:TSN) is currently one of the most attractive consumer staples stocks to buy. The company is currently trading at a trailing 12-month price-earnings ratio of about 11. It is expected to experience steady earnings growth over the next five years. Its price-earnings growth ratio (five years expected) stands at 1.38, making it one of the most attractive among its peers. In comparison, Beyond Meat Inc. (NASDAQ:BYND) trades at a PEG ratio of 9.47.

Tyson Foods has experienced some challenging times amid the coronavirus pandemic. The company has shut some of its meat processing plants, which could have major implications on its profitability. It is also facing legal challenges amid scrutiny from the Justice Department. This has affected its stock price, which is probably why shares are trading at such attractive valuation multiples. However, the company provides about 20% of all chicken and beef served in the U.S. As the economy continues to reopen, Tyson Foods could become a real opportunity post-Covid-19.

Procter & Gamble

Some investors could also look to dividend aristocrats like Procter & Gamble Co. (NYSE:PG). Founded in 1837, it is one of the oldest companies in the world. It endured the Great Depression of the 1930s, World War II and even the 2008 global financial crisis. This makes it a fairly safe stock to invest in during a recession. After a rough period between Feb. 21 and March 23, the company's stock has bounced back to stabilize just below $120 per share.

Its short-term valuation multiples are not as attractive as those of close peers Kimberly-Clark Corp. (NYSE:KMB) and Unilever NV (NYSE:UN). Procter & Gamble trades at a trailing 12-month price-earnings ratio of about 62.36, which compares to Kimberly-Clark's 22 and Unilever's 20. However, when we look further ahead, the company's PEG ratio of about 3.00 prices the stock more attractively compared to its U.S.-based peer's equivalent of 5.40.

Procter & Gamble is also a dividend aristocrat. It has increased dividends paid for 27 consecutive years, which makes it one of the most reliable dividend stocks to invest in. And at the current yield of about 2.7%, it might not be too late to invest during the second half of the year.


Other investors could opt for consumer staples stocks that could experience rapid growth. Archer-Daniels-Midland Co. (NYSE:ADM) could be an ideal option given its most recent quarterly earnings growth of about 68%. The company is also a dividend aristocrat with over four decades of dividend growth.

This company sells products that are too important to ignore even during a recession. Its top line was not adversely affected by the coronavirus pandemic. The company trades at an attractive PEG ratio of 1.50 compared to Conagra Brands Inc.'s (NYSE:CAG) 2.30 and Bunge Ltd.'s (NYSE:BG) 1.71.


In summary, the global economy is expected to contract by nearly 5% this year. In the U.S., the contraction is expected to be higher at 8%. The U.S. unemployment rate is expected to remain in the high single-digit levels amid Covid-19, which will continue to affect investment opportunities.

Targeting markets that specialize in important products like consumer staples could be an attractive option for those searching for opportunities in stocks that can weather the storm without major disruptions.

Disclosure: No positions in stocks mentioned.

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This article first appeared on GuruFocus.