Stock Analysis & Ideas

As Tech Stocks Drop, Consumer Staple Stocks PG and KO Tempt

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The consumer staple sector mostly includes products and services like food & beverages and other items that are considered basic necessities. Procter & Gamble and Coca-Cola are two well-known consumer staples that investors can turn to in order to weather the current economic storm. 

Popular consumer staple stocks like The Procter & Gamble Company (NYSE:PG) and The Coca-Cola Company (NYSE:KO) can be your knights in shining armor amid the growing U.S. economic recession fears and the rising interest rate environment.

Rising benchmark interest rates have weighed heavily on growth sectors such as technology. In fact, shares of all the popular members of the tech group, under the recently coined acronym MATANA, have fallen so far in 2022. This basket of tech stocks includes big-wigs like Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), and Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), which have declined 19.8%, 9.8%, 23.9%, 19.9%, 51.8%, and 23.5%, respectively, so far in 2022.

There seems to be no immediate respite for the tech sector amid lingering concerns about another interest rate hike by the Federal Reserve and other macroeconomic headwinds. Moreover, the Fed’s latest super hawkish stance has increased concerns regarding the U.S. economy slipping into recession.

Considering the current market backdrop, let’s take a look at the following consumer staple stocks that have low betas and can provide investors with dividends along with diversification benefits.

The Procter & Gamble Company (NYSE:PG)

With a market cap of $334.44 billion, the consumer staple company mostly deals in household and personal care products related to health care, beauty, family care, home care, and baby care. Procter & Gamble has built a very strong brand over the years and boasts impressive operational strength.

This major consumer goods company also provides a dividend yield of 2.55%, surpassing the sector average of 1.66%. Procter & Gamble also flaunts a very high dividend payout ratio of 61.34%. The low beta of 0.16 also explains the low co-relation of PG stock with the broader market environment.

Is PG Stock a Buy or Sell?

As of now, Procter & Gamble stock seems like a decent option to invest in. According to a TipRanks tool, financial bloggers look bullish about PG stock. Financial bloggers’ opinions are 81% Bullish on PG stock, above the sector average of 64%.

Meanwhile, analysts have mixed feelings about Procter & Gamble stock. According to TipRanks, Street is cautiously optimistic about PG stock, which carries a Moderate Buy consensus rating based on seven Buys and five Holds.

Finally, PG stock’s average price target of $155.08, signals a 9.9% upside potential from its current level.

The Coca-Cola Company (NYSE:KO)

Beverage giant Coca-Cola has a market cap of $269.51 billion. The company delivered impressive second-quarter results largely on the back of price hikes and a solid recovery in volumes due to a rise in away-from-home consumption. Painting a rosy picture ahead, Coca-Cola has raised its full-year organic revenue growth guidance.

Coca-Cola flaunts a dividend yield of 2.76%, which is higher than the sector average of 1.66%. The company’s dividend payout ratio looks attractive at 70.33%. The beverage giant’s low beta of 0.46 is also worth a mention.

Is Coca-Cola a Good Stock to Buy?

Coca-Cola stock seems like a great pick. Turning to Wall Street, analysts are optimistic about KO stock as it has a Strong Buy rating, based on nine Buys and three Holds. KO stock’s average price of $70.25, signals a 12.4% upside potential from current levels.

Moreover, financial bloggers and retail investors seem bullish about KO stock. Financial bloggers’ opinions are 87% Bullish on KO stock, above the sector average of 64%. Retail investors have also increased their holdings in KO stock by 1.1% in the last 30 days.

Finally, according to a TipRanks tool, KO stock carries a Smart Score of 9 out of 10, which highlights its ability to outperform.

Conclusion: Take Shelter in Consumer Staple Stocks Amid Market Turmoil

The market rout in the technology sector has already led to the rotation of investments from growth-oriented to value-oriented areas. The consumer staple sector sees demand levels that are immune to the economic cycles. Thus, resilient consumer spending in this non-cyclical sector makes it a good defensive investment option to weather the storms.

With their strong underlying fundamentals and attractive dividend yields, Procter & Gamble and Coca-Cola, look like good investment options. Adding to their appeal, PG and KO offer dividend yields that are higher than the overall consumer goods sector average.

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