Consumer confidence – a key determinant of the economy’s health – has been improving significantly of late. A gradual recovery in the housing market as well as the manufacturing sector played a crucial role in raising buyers’ confidence. Cheaper gasoline prices and a strong labor market increased household wealth, which eventually boosted consumer spending.

Positive GDP also lifted stocks. In addition to this, growth was boosted by a pickup in construction spending, increased business spending on equipment, a bigger buildup in inventories and higher government spending.

However, markets experienced a dismal month in August, weighed down by concerns about China and uncertainty over the timing of interest rate hike by the U.S. Federal Reserve.

Performance in August

For the month, the S&P 500, the Dow and the Nasdaq plunged 6.3%, 6.6% and 6.9%, respectively. While the Dow notched up its biggest monthly decline in more than five years, the S&P 500 and the Nasdaq registered their steepest monthly losses since May 2012. All the major indexes moved in and out of their correction territory to end a volatile month in the red.

Benchmarks slumped for the month on concerns that a weak Chinese economy would result in a global slowdown. The recent move by China’s central bank to cut interest rate and devalue its currency to prop up growth, also failed to calm investors. In fact, investors’ fears were heightened after the continual stock market losses in the last week of August. Benchmarks also closed in the red, following the yuan’s devaluation.

Amid a derailed Chinese economy, the U.S. Federal Reserve’s pending decision over the hike in the benchmark interest rate, known as the federal funds rate, remains another major cause of concern.

Last Saturday, Fed vice-chairman had hinted for a possible hike in interest rates in September, which has been set at a record low of 0.25% since Dec 2008. While the effect of interest rate hike in September could draw investment funds out of emerging markets and put them back in the U.S.; a weakening Chinese economy will become an overhang on global stock markets and heighten investors’ concern.

In such a scenario, some industry analysts predict that Fed may delay the interest rate hike to end of the year, which would be a better step toward “normalizing monetary policy,” considering the global economic climate.

Despite these worries, it may be a good idea to look at some other consumer staples stocks that have the potential to outperform. These stocks remain well positioned in today’s market and could perform well despite the aforementioned trends. Thus, investors should reshuffle their portfolios factoring in the expected interest rate hikes.

3 Consumer Stocks to Buy Now

With the help of our new style score system, we have identified three consumer staples stocks that have excellent prospects and are good bets in such a struggling economic scenario.

Our Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential.

To arrive at the best value picks, we first shortlisted stocks that either have a Zacks Rank #1 or #2 with a Value Style Score of ‘B.’

Omega Protein Corp. (OME - Snapshot Report)

Houston-based Omega Protein has a Zacks Rank #1 and a Value Score 'B.' It is one of the nation's leading producers of edible fish oil.

It trades at a forward P/E (price-to-earnings) of 13.34x, which is favorable compared with the industry average of 18.70x and S&P average of 16.00x.

Omega Protein has delivered strong season-to-date fish catch and fish meal production in the first half of 2015, which helped to mitigate the impact of lower fish oil yields in the animal nutrition business. Its human nutrition business improved as well. The company looks to focus on integrating its businesses in the second half of 2015.

Cott Corporation (COT - Snapshot Report)

Tampa, FL-based Cott Corporation is one of the world's largest non-alcoholic beverage companies and the world's largest retailer brand soft drink provider. It carries a Zacks Rank #2 along with a Value Score 'B.'

Though the stock looks a bit pricey with a forward P/E multiple of 47.46x, higher than the S&P average of 16.00x, this should not bother investors, given the company’s strong fundamentals. Cott has delivered positive surprises in three out of the past four quarters, with an average positive earnings surprise of 346.86%.

Ingredion, Inc. (INGR - Snapshot Report)

Based in Westchester,  IL, Ingredion, Inc. manufactures and sells starches and sweeteners to various industries and carries a Zacks Rank #2 and a Value Score 'B.'

It possesses a forward P/E of 14.94x, lower than the industry average of 18.70x and S&P average of 16.00x. Further, for full year 2015 and 2016, EPS is estimated to grow 11.15% and 7.61%, respectively.

Bottom Line

We believe the concerns over sluggish Chinese economy and uncertainty over the timing of a rate hike would lead to shaky September trading. Thus, it would be beneficial for investors to intelligently select their stocks for investments. The above mentioned stocks can prove to be valuable additions to investors’ portfolio.

You can use the Zacks Stock Screener to find other stocks with this winning combination. Investors can confidently end their search at stocks with a favorable Zacks Rank of either #1 or #2, which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions. A sturdy portfolio always gives favorable returns.

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