5 Consumer Staples Stocks To Bet On This Earnings Season

After the Brexit referendum, which shook the global economy in Jun 2016, investors have become jittery and are resorting to safe haven stocks. In this scenario, the consumer staples sector appears to be quite reliable.

Overall, the sector has reported modest results this quarter. Lower gas prices, an improving job scenario and increasing consumer confidence have been supporting the improvement in results.

Improving home sales, stepped-up economic activities, higher business and government spending and a buildup in inventories have boosted U.S. economic growth. While gradual improvement in the macro-economic scenario will act as a growth driver, decreasing commodity costs will also help improve profit margins for certain staples companies.

Though lower crude oil prices are leading to worries related to global deflation and an economic slowdown, subsiding oil and natural gas prices mean that consumers are left with more disposable income. A rise in wages has also increased household wealth and boosted consumer spending. We expect these positive sentiments to translate into higher consumer spending in 2016.

However, there are many consumer staple stocks, which are still suffering from continued pressure in the face of limited consumer spending, foreign exchange headwinds, declining unit volumes and other global issues. Continued appreciation of the U.S. dollar relative to most foreign currencies has become a serious headwind to the earnings of U.S.-based staples companies with significant international operations like Kimberly-Clark Corporation (KMB), Mondelez International, Inc. (MDLZ), The Procter & Gamble Co. (PG), Altria Group, Inc. (MO), ConAgra Foods, Inc. (CAG) and General Mills, Inc. (GIS).

In such an investment climate, we have identified five stocks, which not only have strong fundamentals but are also likely to report solid quarterly numbers. So it’s better to grab these retail stocks now before they start touching new highs after their results.

The Way to Pick the Right Stocks 

Obviously, there are quite a few companies in the consumer staples space, so it may be difficult to pick the right stocks for your portfolio. One way to narrow down the list of choices is by looking at stocks with a favorable Zacks Rank of #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Earnings ESP.

Earnings ESP is our proprietary methodology to determine which stocks have the best chance to surprise in their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of positive earnings surprise is as high as 70%.

5 Prominent Choices

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