US stock markets have been experiencing a strong rally since mid-October. After a stunning rally in the past two years of the pandemic, Wall Street has been a disappointment in 2022 so far.
We’re not sure if the current uptrend is a bear market rebound as we saw from mid-June to mid-August, or a real bear market reversal. However, some positive developments are emerging this time in the inflation rate as well as on the part of the Federal Reserve.
Hopefully, the recent northward movement in US stocks will converge into a rally towards the end of the year. To capitalize on this rally, we’ve selected five key consumer stocks in Zacks’ preferred order. These companies are – Conagra Brands Inc. CAG, General Mills Corporation geographic information systems, Lamb Weston Holdings Inc. LW, JM Smucker Co. SJM and MGP Ingredients Inc. MGPI.
The positive development of the rate of inflation
The Consumer Price Index and the Producer Price Index for October came in lower than expected. These two numbers, along with the Personal Consumption Expenditure Price Index for the third quarter of 2022 – the Fed’s preferred measure of inflation – suggested that the peak of inflation may be behind us.
Thus, the Fed is likely to ease its tight monetary control. The central bank is expected to lower interest rate hikes from the Federal Open Market Committee meeting in December. This will help the stock market in general.
Although the Fed has yet to give any signal of a shift from its ultra-hawkish monetary policies, a section of Fed officials have recently spoken in a relatively dovish tone. According to CNBC, on November 22, Loretta Mester, President of the Federal Reserve Bank of Cleveland, said that recent inflation data is promising and that she will support rate cuts in the future.
Market participants are evaluating whether the final interest rate for the ongoing rate hike will remain within or exceed 5%.
Consumer goods are immune to the vagaries of the economic cycle
The consumer staples sector is mature and strong mainly because the demand for these services is generally immune to changes in the economic cycle. The FMCG sector includes companies that provide necessities and products for everyday use. This makes the sector defensive in nature.
Therefore, this has always been a go-to place for investors who want to play safe during extreme market volatility regardless of internal or external turmoil. Moreover, the sector is known for its stability and prominence for its earnings and cash flows. Thus, adding stocks from the basket of consumer goods brings more stability to portfolios in an uncertain market.
Of the 11 broad market index sectors — the S&P 500 — only the energy sector is traded; Positive territory with a whopping 68% uptick year-to-date. However, among the remaining 10 sectors, consumer staples have suffered the least, with a marginal decline of 1.5% year-to-date, while the benchmark itself is down 16%.
Our top picks
We’ve picked five key consumer stocks that are currently trading near 52-week highs with more to the upside remaining. Each of our picks is currently rated Zacks #2 (Buy). you can see The full list of Zacks #1 Stocks (Strong Buy) today is here.
The chart below shows the price performance of our five options since the beginning of the year.
Image source: Zacks Investment Research
Conagra Brands It benefited from its aggressive pricing actions, which helped deliver profits in the first quarter of fiscal 2023. During the quarter, both profits and sales grew year over year. Results gained from the strength of the company’s branding, effective pricing and consistent implementation of the Conagra Way playbook.
CAG delivered improved service and productivity amid persistent inflationary pressures and industry-wide supply chain bottlenecks. Management expects the inflationary landscape to continue in fiscal 2023. CAG also expects volumes to be affected by supply chain issues in the second quarter. Pricing and innovation are likely to help Conagra Brands. We expect organic sales to grow 4.9% in fiscal 2023, which is the higher end from a CAG standpoint of 4-5%.
Conagra Brands has an expected earnings growth rate of 3% for the current year (ending May 2023). Zacks consensus estimate for current-year earnings has improved by 0.8% over the past 60 days.
general mills It has leveraged its acceleration strategy, highlighted by its key priorities. These include competing efficiently, investing in comprehensive margin management, strategic revenue management initiatives and portfolio reshaping.
The recent reshaping of the GIS portfolio is likely to drive growth in the long term. In fiscal 2023, management expects cost of goods sold to increase. However, savings and pricing measures should help. GIS is also benefiting from its pet unit, as we saw in the first quarter of fiscal 2023 when both top and bottom earnings grew year over year.
General Mills’ earnings growth rate is 3.8% for the current year (ending May 2023). Zacks consensus estimate for current year earnings has improved by 0.2% over the past 30 days.
Lamb Weston It produces, distributes and markets value-added frozen potato products all over the world. LW’s top line benefited from a strong price/mix, as seen during the first quarter of fiscal 2023. Price/mix increased 19%, reflecting gains from pricing actions in core business segments to counteract inflation in input, manufacturing and transportation costs.
Lamb Weston’s top and bottom lines increased year over year in the quarter. LW experienced net sales growth across all three reporting segments. While the macro environment remains volatile, management is on track to deliver results at the end of sales and target profits in fiscal year 2023. In addition, Lamb Weston has been keen to enhance production capacity to support long-term growth.
Lamb Weston’s projected earnings growth rate is 45.7% for the current year (ending May 2023). Zacks consensus estimate for current-year earnings has improved by 8.6% over the past 60 days.
and JM Smucker is the leading marketer and manufacturer of consumer food and beverage products, pet food, and pet snacks in north america. Although the majority of SJM’s operations are concentrated in the United States, it also operates on an international basis.
SJM prides itself on a strong selection of signature food and beverages. SJM mainly caters to the fields of coffee, pet food, peanut butter, fruit spreads, baking products, spread-ready frosting, frozen sandwiches, flour, juices, beverages as well as portion control products.
JM Smucker’s projected earnings growth rate is 12.6% for the next year (ending April 2024). The Zacks consensus estimate for current-year earnings has improved by 0.1% over the past seven days.
MGP Components Produces and markets ingredients and distillation products for the packaged goods industry. The Distillation Products division of MGPI mainly offers food alcohol, fuel alcohol and distillate feed. MGPI’s Ingredient Solutions segment primarily provides specialty wheat starches and proteins, commodity wheat starch and basic wheat gluten.
MGP Components has an expected earnings growth rate of 12.5% for the current year. Zacks’ consensus estimate for current-year earnings has improved by 1.9% over the past 30 days.
Zacks Names “Single Best Pick to Double”
Out of thousands of stocks, each of the 5 Zacks experts picked their favorite to skyrocket +100% or more in the coming months. Out of these five, Research Director Shiraz Mian selects one with the most explosive upside of all.
It’s a little-known chemical company, up 65% year-over-year, but it’s still cheap. With relentless demand, skyrocketing earnings estimates for 2022, and $1.5 billion in stock buybacks, retail investors could jump in at any time.
This company could rival or beat other recent Zacks stocks that are set to double like Boston Beer Company which is up +143.0% in just over 9 months and NVIDIA which is booming +175.9% in one year.
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General Mills, Inc. (GIS): Free stock analysis report
Conagra Brands (CAG): Free stock analysis report
The JM Smucker Company (SJM): Free stock analysis report
MGP Ingredients, Inc. (MGPI): Free stock analysis report
Lamb Weston (LW): Free stock analysis report
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