The consumer staples sector, long a haven for defensive investors in times of economic uncertainty or market downturns, has had a difficult year. Year to date, the sector has risen 9.5%, still well below the 15.4% rise of the S&P 500. Within the past year, there have been skeptics who contend that, due to disappointing earnings, the sector can no longer reliably be considered “defensive.” Investors are now more discriminating and no longer view the consumer staples sector as a whole, but divided between those companies that are struggling, due to profound changes in consumers behavior and diminished loyalty to brand names, and those companies that are adjusting to the new realities of a sector in flux.
For decades, consumers didn’t mind paying a premium for these company’s products because they were assured of quality and felt comfortable with purchasing a brand name. Indeed, so ubiquitous were the names of some of these products that, over time, some of the trademarks merged into descriptive nouns that became part of our everyday vocabulary: Xerox, Band Aid, Kleenex. This phenomenon was indicative of these companies established and unchallenged dominance in their respective markets.
The recent performance of the stocks in this sector, however, forebodes a very different future.
The key metric for a relative assessment of the diverse group of staples