Update February 17, 2019: I’m still long General Mills and Kraft Heinz. Berkshire Hathaway just released its quarterly 13f and Buffett is continuing to hold Kraft Heinz. I’m in the red for now, although, my thesis on these consumer staple stocks hasn’t changed… I see new highs coming long-term and I’ll collect stable dividends in the meantime.
The stock market is overvalued but one sector stands out…
This sector is a favorite of Warren Buffett and it’s flashing a buy signal.
Dividend yields on some of these stocks are close to post 2008 crisis levels. The value opportunity is one of the best I’ve seen in this aging bull market.
Investors Fear Consumer Staple Stocks
Investors have fled consumer-staple stocks in droves. They’ve pushed prices well below their 52-week highs.
The Consumer Staples SPDR Fund manages $8 billion and it’s down 14% from its recent high.
Some of the fear is justified but the pullback is great for disciplined value investors.
There are two main drivers behind the decline…
- Commodity prices are rising around the world.
- Online competition, from companies like Amazon, is making it hard to pass costs to consumers.
It’s a tough environment but many consumer staple companies will adapt. They have a long history of staying relevant.
Many of the companies also have a long history of paying growing dividends. They keep paying investors through the thick and the thin… and this time isn’t any different.
You can gain broad access through a low-cost fund… or invest in the best stocks in the fund. The three stocks below are trading at a better value compared to their peers…
Three Fat Yield, Consumer Stocks
- General Mills (GIS) markets their food in more than 100 countries. It’s a well-diversified cash flow machine. This has allowed it to pay a dividend without interruption for 119 years.Investors have pushed General Mills shares 37% below their high. Its dividend yield now sits at a whopping 4.3%.
- Kraft Heinz (KHC) is one of Warren Buffett’s favorites. It has a portfolio of strong brands and it’s the fifth largest food and beverage company in the world.Kraft Heinz shares are down 35% from their highs. This drop has pushed the dividend yield above 3.9%.
- Procter & Gamble (PG) is a household name. It’s one of the largest consumer product businesses in the world. Their products touch people’s lives three billion times a day.Procter & Gamble has raised its dividend every year for the last 62 years and it’s paid a dividend for 128 consecutive years. Shares are down close to 20% and the dividend yield now sits at 3.7%.
The 10-year bull market makes value investing tough… but these stocks are some of the best value plays in the market.
Warren Buffett has made a great fortune by investing when other investors are fearful. You can too by finding beaten down stocks. The consumer staples sector is a great place to start your search.
P.S. I bought GIS shares near a recent low. It’s a long-term investment and I’m now waiting for better entry points on KHC and PG.