Inflation, the rate at which prices increase, remains strong, leading to markets pricing in higher rates for longer periods. This has put pressure on long-dated assets like growth stocks, prompting investors to consider consumer staples stocks as a defensive play.
The March Consumer Price Index (CPI) exceeded expectations, dispelling the belief that January and February’s strength was due to seasonal factors. Federal Reserve Chairman Powell also acknowledged the lack of progress towards the 2% inflation target. Consequently, rates have risen year-to-date, and expectations for rate cuts have decreased.
Higher rates are expected to impact growth sectors, particularly unprofitable technology and biotech stocks. Conversely, assets that generate cash flow, such as consumer staples stocks, are likely to perform well. These stocks are also relatively cheaper compared to the S&P 500.
One such consumer staples stock to consider is Unilever (NYSE: UL), a leading fast-moving consumer goods company with strong brands like Dove, Rexona, Lux, and Omo. Unilever offers products in personal care, beauty, home care, and nutrition, essential items in daily life that provide steady earnings growth and returns to shareholders.
Investing in Unilever now could be advantageous due to ongoing restructuring efforts aimed at improving profitability. The company is focusing on its 30 power brands, divesting non-core businesses, and implementing cost-cutting measures. These strategic changes are expected to boost margins and enhance profitability, making Unilever a compelling investment opportunity at 18 times forward earnings.
In conclusion, consumer staples stocks like Unilever can provide stability in uncertain times, making them attractive options for investors seeking defensive plays in a volatile market.