As a financial term, it is used to describe shares and companies that produce or distribute these necessary goods which tend to remain stable during both good and bad economic times. The consumer staples sector has outperformed all but one sector since 1962. More importantly, the consumer staples sector has outperformed the S&P 500 during the last three recessionary periods. Due to their low volatility, consumer staples stocks are considered to play a key role in defensive strategies. Investing in companies that make products people buy day-in and day-out is a smart way to weather an economic storm, but there are some consumer staples stocks to sell which are the exception to that rule. A consumer staples stock includes a whole range of companies— from over-the-counter medicines to household products, food and even alcohol and tobacco.

When it is in decline, budget constraints cause people to spend only on what they need—and cyclicals lose sales. When the economy is doing well and money is flowing, people are willing to spend $4 to $6 for a coffee. When the economy turns and people have to be more frugal, they’re more likely to make coffee at home. Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies. As such, they may not appeal to investors who seek rapid growth, or who are willing to take on a higher degree of risk for higher potential returns. Finder.com is an independent comparison platform and
information service that aims to provide you with information to help you make better decisions.

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Nestle operates in nearly 200 countries, employs over 330,000 people and operates over 400 factories. The company is also one of the biggest shareholders of L’Oreal, another company on our list. The advertisements almost always have children either enjoying a cereal or playing with a toy.

• Consumer Staples, also known as consumer defensive stocks, refer to products that are essential for everyday use.
• Investors can buy consumer discretionary stocks using a standard taxable brokerage account or a tax-advantaged individual retirement account (IRA).
• Finally, although consumer staples stocks hold up well in recessionary periods, they tend to lag the broader market during boom times.
• These include makers of beauty and personal hygiene products such as Estee Lauder and Procter & Gamble.
• Partnerships are not a recommendation for you to invest with any one company.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Research Sector and Industry performance  Get the latest news and analysis for sectors and industries. Dock David Treece is a former licensed investment advisor and member of the FINRA Small Firm Advisory Board.

Companies in this industry manufacture, distribute and sell products like food, beverages and personal hygiene products, which are typically less sensitive to economic cycles. You buy consumer staples regardless of the state of the economy, and the amount you buy is relatively fixed in good times and bad. The consumer staples sector had middle-of-the-pack returns during the bull market discussed above.

Worldwide, Walmart gets more than 260 million customer visits each year. For those who prefer to avoid crowds, there’s the members-only Sam’s Club and Walmart+ subscription delivery options as well. They can also be paper towels, toilet paper, and window cleaner for example.

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A product that is not a necessity but is commonly purchased by the vast majority of consumers is often also considered a staple item. Like most of its peers, Reckitt is slowly increasing prices in a bid to cover its rising costs. But the good news here is that the volume declines are less about the price increases and more about the end of the pandemic era. The bulk of these declines are coming from hygiene as people spend less in this category.

Along with food, personal hygiene products are among the most common products sold in the market today. Just about every consumer will purchase a staple such as soap, deodorant, and toothpaste as part of the inventory of items that are maintained in the household reserves. The term is derived from the fact that the products are generally purchased by consumers, not businesses, and the fact that product sales (and the related stock prices) move in cycles. Consumer Staples are essential products that include typical products such as foods & beverage, household goods, and hygiene products; these goods are necessary for consumers regardless of economic conditions. The main identifying factor of consumer staples is the consistency of demand for the products among consumers.

The Difference Between Consumer Staples and Consumer Discretionary ETFs

The term consumer staples refers to a set of essential products used by consumers. This category includes things like foods and beverages, household goods, and hygiene products as well as alcohol and tobacco. These goods are those products that people are unable—or unwilling—to cut out of their budgets regardless of their financial situation. Consumer staples stocks come from companies that produce goods that are essential for consumers—products such as toilet paper, food, soap, or clothing. Where consumer cyclicals are considered offensive stocks, consumer staples are seen as defensive for portfolios because demand for their products is likely to be consistent through market downturns. Consumer staples stocks function in a non-cyclical manner, meaning they offer investors safety during recessionary climates.

The best consumer staples companies tend to have consistently strong organic sales, leading market shares, and attractive dividend yields. Although the industry sees relatively little innovation and growth, consumer staples products tend to be timeless, and these companies are likely to continue to endure. Also, because these stocks tend to perform in a way counter to the consumer discretionary sector in market recessions, they can help bring balance to a portfolio. The largest consumer staples companies have been in business for decades, some for even more than a century. Since they sell products that are always in demand, consumer staples stocks sustain long-term brand value—and that translates into long-term stock value for investors. More importantly, the consumer staples sector has outperformed the S&P 500 during the last three recessionary periods—or periods of negative growth in the gross domestic product (GDP).

1. What Are Consumer Staples?¶

But if you lost your job or if the economy was declining, you might reduce or eliminate these items from your budget. Unlike other stocks, the best time to buy consumer cyclicals is often when they have high valuation ratios. If a cyclical stock’s price-to-earnings (P/E) ratio is high, it could be because earnings are in a downcycle that will soon turn. Conversely, if the P/E is low, it may be because the company’s earnings are peaking in an upcycle that won’t last forever.

It’s difficult to see how the group can offset these rising costs given the performance this year, and that’s part of the reason Heineken lowered its 2023 outlook. All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, consumer staples meaning medical, or any other professional. You will earn 150
bonus reputation points for each definition that is accepted. Doug is a Chartered Alternative Investment Analyst who spent more than 20 years as a derivatives market maker and asset manager before “reincarnating” as a financial media professional a decade ago. Each week, Zack’s e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more.

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L’Oreal is a French company that manufactures a range of personal care products, including cosmetics. The company started in 1909 when a chemist invented a hair dye and has since grown into the world’s largest cosmetics company. Along with hygiene and food products, consumer staples also include household maintenance products, such as cleansers for then kitchen and bath areas. Laundry detergent and dishwashing products are other examples of some of the most common consumer products within this category. Just about everyone washes clothing and dishes, as well as cleaning and freshening the home from time to time. Consumer staples companies have an excellent ability to withstand recessions, increase their dividends, and post consistent, incremental growth.

Consumer Staples, often known as essential goods, are items that people are either unwilling or unable to eliminate from their budget regardless of their financial constraints or economic situation. These goods are used to meet basic needs and include items such as food, beverages, hygiene products, clothing, tobacco, and household items. Since these are goods that people use daily regardless of the economic situation, companies in this industry tend to offer stable earnings and consistent dividends.

An added perk is its higher dividend yield than the S&P 500 Index — even during a recession. The consumer staples sector also often lures investors with its components’ rich dividend yields, which tend to be larger than those generated in other sectors. Because of their slow and steady nature, consumer staples stocks can also not only continue to pay dividends through recessionary periods but often continue to increase their payouts. According to “Dividend.com,” the annual dividend rate increased 8% over the 20 years ended in 2015. The consumer staples sector also often lures investors with its components’ rich dividend yields, which tend to be larger than those generated in other sectors.

The company used to make snacks and beverages under the Pringles brand, before selling that division to Kellogg. To help you find the best consumer staples stocks, Forbes Advisor has profiled the 10 largest companies in this sector by market capitalization. Consumer staples stocks provide goods and services that are essential for daily life.