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Consumer staples: market predictions for 2020 and beyond

By Connor Freitas

Consumer staples can prove to be dependable during times of turbulence in the stock market. Here is how the sector is expected to fare in 2020

Fears of an imminent recession were growing among economic analysts throughout 2019, but the S&P 500’s better-than-expected performance last year has prompted a wave of cautious optimism for the stock market in 2020. Nonetheless, as geopolitical tensions rise and the US prepares for an election in November, there may be choppy waters ahead. Consumer staples are often tipped as reliable stocks during times of uncertainty – here, we’ll offer predictions for this industry in 2020 and beyond.

What are consumer staples?

The definition of consumer staples is nice and straightforward: they are the products which are essential purchases for shoppers. Groceries fall nicely into this category – as do hygiene products, basic household goods and even alcoholic beverages or tobacco. Put simply, they are items which consumers will continue purchasing even when times are tight – the things they can’t do without.

Investing in consumer staples is seen as a shrewd strategy during times of weak performance in the stock market. Companies in this sector continue to enjoy demand for their products, allowing them to achieve steady levels of revenue and carry on delivering dividends. The main risks in the industry surround pricing (especially if a rival starts offering similar products more cheaply) and rising costs in raw materials.

Consumer staples industry analysis

Speaking in generalities, the consumer staples sector often tends to lag behind indexes such as the S&P 500 when the economy is performing strongly. However, when a downturn begins, the opposite is true – and these stocks then begin to fare better than the wider market. Consumer staples also begin to look more attractive during corrections and times of bearish sentiment.

According to figures from Fidelity, the consumer staples sector has enjoyed growth of 21.4 per cent over the past 12 months. Although these are undeniably healthy figures – and far beyond the average – it still pales in comparison to the S&P 500’s growth of 23.6 per cent. Longer term, the divide becomes even more apparent. Over three years, staples grew 24.2 per cent, while the S&P grew 46.2 per cent.

Three consumer staples stocks to consider

As we’ve deduced, consumer staples mainly come recommended if you believe that the stock market will struggle to keep up its momentum in 2020 and beyond.

According to Zacks Equity Research, Tyson Foods is one company in this sector which is expected to continue enjoying a stellar performance this year. The brand is among the world’s biggest processors of chicken, beef and pork. Indeed, even though the business actually missed analyst expectations for fourth-quarter sales back in November, stock prices actually continued to rise. Figures from Zachs show that Tyson delivered share price growth of 61.6 per cent over the course of 2019 – comfortably ahead of the 35.7 per cent average across the meat products market.

The company has been moving away from the non-core brands in its business to focus on catering for rising demand in protein – simultaneously, it has been aggressively developing plant-based products in response to evolving consumer tastes. Twelve analyst forecasts, compiled by CNN Business, show a low-end forecast of $89 for Tyson Foods stock in 2020 – that’s still 4.5 per cent higher than its current level of $85.90. The high-end estimate of $107 is a 25.6 per cent jump on the stock’s value at the time of writing.

One well-known brand that is forecast to do well this year is Walmart. The retailer is managing to mount a robust defence against Amazon, which is continuing to assert its dominance in the e-commerce sector. With 21 consecutive quarters of growth under its belt in the US, Walmart saw its online sales soar by 41 per cent in the third quarter of 2019, fuelled by unabated demand for groceries. Although some analysts believe growth at such breakneck speed will be difficult to maintain, 2020 forecasts for Walmart stock are healthy. Priced at $115 at the time of writing, the low-end estimate for the end of the year stands at $109 (a decrease of just 5.4 per cent) — with a median projection of $131 (a 13.7 per cent rise) and a high-end forecast of $152 (a 32 per cent increase).

Last but not least, we have PepsiCo, the snacking and beverages giant. Share price growth of 27 per cent during 2019 comfortably outpaced the soft drinks market, and the wider consumer staples market too. The company’s strong performance has been attributed to decisive strategies when it came to pricing, product innovation and productivity targets – with the savings from aggressive cost-cutting measures being reinvested back into the business. That said, some analysts argue that the upbeat forecast for 2020 has already been factored into its share price.

From Costco to Coca-Cola, it seems there is a lot of excitement surrounding consumer staples this year. If the stock market hits the buffers, expect the buzz surrounding these stocks to increase even further.

FURTHER READING: S&P 500 forecast for 2020

FURTHER READING: How to calculate return on your investment

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