4 Consumer Defensive Stocks to Buy to Protect Your Portfolio as the Nasdaq Enters Correction Territory Concerns over high inflation and the Federal Reserve's plan to raise interest rates has led to the tech-heavy Nasdaq into correction territory lately. Therefore, we think it could be wise...
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Concerns over high inflation and the Federal Reserve's plan to raise interest rates has led to the tech-heavy Nasdaq into correction territory lately. Therefore, we think it could be wise to bet now on consumer defensive stocks because they typically perform relatively well in an inflationary environment. Inelastic product demand, wide market reach, and impressive dividend payout histories make consumer defensive stocks PepsiCo (PEP), Mondelez International (MDLZ), Keurig Dr Pepper (KDP), and Coca-Cola Europacific Partners (CCEP) well-positioned to dodge current market volatility. So, these Nasdaq Index stocks could help one protect portfolio returns. Let's examine these names.
The major benchmark stock indexes have entered correction territory, owing to rising concerns over high inflation, growing tensions in Ukraine, and the Federal Reserve's decision to hike interest rates in March 2022. The tech-heavy Nasdaq Composite, which is interest-rate sensitive, has declined 4.3% over the last five trading days to close yesterday's session at $13,542.12, down 16.5% from its all-time high of $16,212.23.
Because experts expect the tech sell-off to continue, we think it could be wise to bet on dividend-paying consumer defensive stocks to hedge one's portfolio. Inelastic product demand helps consumer defensive companies to exhibit resilience amid an inflationary environment. Therefore, the consumer defensive industry typically withstands a market correction better than many industries.
Given this backdrop, it could be wise to invest in consumer defensive stocks PepsiCo, Inc. (PEP), Mondelez International, Inc. (MDLZ), Keurig Dr Pepper Inc. (KDP), and Coca-Cola Europacific Partners PLC (CCEP), which are all in the Nasdaq Index, pay dividends, and have the potential to deliver solid returns, dodging the short-term fluctuations.
PepsiCo, Inc. (PEP)
Harrison, N.Y.-based PEP manufactures or uses contract manufacturers, markets, and sells a variety of grain-based snacks, carbonated and non-carbonated beverages, and foods worldwide. It markets its products through a network of direct-store-delivery, customer warehouse, distributor networks, as well as through e-commerce platforms and retailers.
PEP paid a $1.08 quarterly cash dividend on Jan. 7, 2022. The stock pays a $4.30 per share dividend annually, translating to a 2.54% yield. The company's dividend has grown at a 7.49% rate over the past five years.
On Oct. 7, 2021, PEP's Frito-Lay division announced 2021 site investments to bolster the snack leader's ability to meet strong consumer demand by funding new manufacturing lines, warehouse expansions, and improving its distribution network. This should allow Frito-Lay to further expand the market reach of its products.
PEP's revenues for its fiscal 2021 third quarter, ended Sept. 4, 2021, increased 11.6% year-over-year to $20.19 billion. The company's non-GAAP gross profit was $10.82 billion, representing a 9.2% rise from the prior-year period. Its non-GAAP operating profit was $3.24 billion, up 6.5% from the prior-year period. PEP's non-GAAP net income came in at $2.48 billion, indicating a 7.4% year-over-year improvement. And its non-GAAP EPS increased 7.8% year-over-year to $1.79. The company had $6.51 billion in cash and cash equivalents as of Sept. 4, 2021.
The $6.24 consensus EPS estimate for its fiscal 2021 ended Dec. 31, 2021, represents a 13% rise from the prior-year period. Analysts expect the company's revenue to increase 11.2% year-over-year to $78.29 billion. Also, PEP surpassed the consensus EPS estimates in each of the trailing four quarters. Pep's EPS is expected to grow at a 9.7% rate per annum over the next five years.
The stock has gained 19.6% in price over the past year and declined 2.4% year-to-date. It closed yesterday's trading session at $169.53.
PEP's POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
PEP has a B grade for Quality and Stability. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for PEP's Momentum, Growth, Sentiment, and Value here.
PEP is ranked #10 of 35 stocks in the B-rated Beverages industry.
Mondelez International, Inc. (MDLZ)
Chicago's MDLZ manufactures and markets packaged food and beverage products worldwide. The company sells its products to supermarket chains, gasoline stations, drug stores, value stores, and retail food outlets, among others, through independent sales offices and agents, direct store delivery, warehouse distribution, and e-commerce channels.
MDLZ paid a $0.35 per share quarterly cash dividend on Jan. 14, 2022. The stock pays a $1.40 per share dividend annually, delivering a 2.10% annual yield. The company's dividend has grown at a 13.1% rate over the past five years.
On Jan. 3, 2022, MDLZ acquired Chipita Global S.A., a high-growth leader in the Central and Eastern European croissants and baked snacks category. MDLZ will utilize Chipita 's Central and Eastern European distribution network capabilities and expertise to enhance its own distribution in the region while expanding its footprint in the key market.
MDLZ's adjusted net revenues for its fiscal 2021 third quarter, ended Sept. 30, 2021, increased 7.8% year-over-year to $7.18 billion. The company's adjusted gross profit came in at $2.75 billion, indicating a 3.4% year-over-year improvement. Its operating profit was $1.24 billion, representing a 4.5% year-over-year improvement. And MDLZ's net earnings came in at $1.26 billion, up 12.5% from their year-ago period. Its adjusted EPS increased 10.9% year-over-year to $0.71. And the company had $3.40 billion in cash and cash equivalents as of Sept. 30, 2021.
The $2.88 consensus EPS estimate for its fiscal year 2021 ended Dec. 31, 2021, represents a 7.1% rise from the prior-year period. Also, it surpassed the consensus EPS estimates in each of the trailing four quarters. Analysts expect MDLZ's revenue to rise 7.8% year-over-year to $28.65 billion. MDLZ's EPS is expected to grow at an 8.7% rate per annum over the next five years.
The stock has gained 15.7% in price over the past year and 0.5% year-to-date. It ended yesterday's trading session at $66.62.
MDLZ's POWR Ratings reflect this promising outlook. The stock has a B grade for Stability and Quality. Click here to see the additional ratings for MDLZ's Growth, Value, Momentum, and Sentiment.
The stock is ranked #34 of 85 stocks in the B-rated Food Makers industry.
Keurig Dr Pepper Inc. (KDP)
KDP in Plano, Tex., manufactures flavored (non-cola) carbonated soft drinks (CSDs) non-carbonated beverages (NCBs), including water, ready-to-drink tea and coffee, juice, juice drinks, mixers, and specialty coffee, and is a producer of single-serve brewing systems worldwide. The company distributes its products to retailers, bottlers and distributors, restaurants, hotel chains, office coffee distributors, and end-use consumers.
KDP paid a $0.19 per share regular quarterly dividend on Jan. 20, 2022. The stock pays a $0.75 per share dividend annually, translating to a 2% yield.
On July 27, 2021, KDP introduced BrewID, a next-generation technology platform designed to give consumers a perfectly customized, rich, full-flavored coffee. BrewID, which is being launched with KDP's K-Supreme Plus SMART brewer, has technology that recognizes the specific brand and roast of the K-Cup pod and automatically customizes the brew settings. KDP expects to witness high demand for this product in the coming months.
For its fiscal 2021 third quarter, ended Sept. 30, 2021, KDP's total revenue increased 1.3% year-over-year to $460 million. The company's adjusted gross profit came in at $1.83 billion, up 8.6% from the prior-year period. Its adjusted income from operations was $931 million, indicating a 6.5% rise from its year-ago period. KDP's adjusted net income was $631 million for the quarter, representing a 13.3% year-over-year improvement. Its adjusted EPS increased 12.8% year-over-year to $0.44. The company had $200 million in cash and equivalents as of September 30, 2021.
The$1.60 consensus EPS for its fiscal 2021, ended Dec. 31, 2021, indicating a 14.3% year-over-year improvement. Analysts expect the company's revenue to be $12.60 billion for the same fiscal year, representing an 8.4% rise from the prior-year period. It surpassed the Street's EPS estimates in three of the trailing four quarters. KDP's EPS is expected to grow at a 9.3% rate per annum over the next five years.
The stock has gained 14.7% in price over the past year and 1.5% year-to-date. It closed yesterday's trading session at $37.41.
KDP's strong fundamentals are reflected in its POWR Ratings. The stock has a B grade for Stability. Click here to see the additional ratings for KDP (Growth, Value, Sentiment, Quality, and Momentum).
KDP is ranked #14 in the Beverages industry.
Coca-Cola Europacific Partners PLC (CCEP)
Based in the U.K., CCEP, together with its subsidiaries, produces, distributes, and sells a range of non-alcoholic ready-to-drink beverages, including energy drinks, waters, juices, sports drinks, ready-to-drink tea, coffee and juices, and other drinks. In addition, the company engages in bottling and other operations.
CCEP paid a $1.59 per share annual dividend on December 6, 2021, translating into a 2.79% yield. The company's dividend has grown at a 21.5% rate over the past five years.
On Oct. 21, 2021, CCEP in Sweden launched a refillable on-the-go drinks solutions pilot at the convenience store PBX, created by Reitan Convenience Sweden, in collaboration with GLACIAL beverage containers. This allows consumers to buy or bring their own beverage containers to fill, choosing from more than 60 flavors, thus reducing waste. The initiative also aims to achieve net-zero greenhouse gas emissions by 2040.
CCEP's revenues for its fiscal 2021 third quarter ended October 1, 2021, increased 24.2% year-over-year to €3.95 billion ($4.42 billion). The stock has gained 19.4% in price over the past year and 1.8% year-to-date. It ended yesterday's trading session at $56.95.
CCEP's POWR Ratings reflect this promising outlook. The stock has an A grade for Growth and a B grade for Sentiment. Click here to see the additional ratings for CCEP's Value, Momentum, Quality, and Stability.
CCEP is ranked #22 in the Beverages industry.
PEP shares were trading at $172.66 per share on Thursday morning, up $3.13 (+1.85%). Year-to-date, PEP has declined -0.60%, versus a -7.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She's passionate about educating investors, so that they may find success in the stock market.
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