As the dark clouds of inflation continue to hover, consumer sentiment is starting to take a hit. The preliminary University of Michigan consumer sentiment index for May fell to a six-month low of 67.4, marking a decline of 12.7% from April's final reading of 77.2. While softening economic data has raised hopes for a potential Fed rate cut, those same data points also highlight an increasingly challenging environment for consumers.
In this scenario, it might seem that only the bravest investors would put their money into consumer stocks. However, with none other than Walmart (WMT) ushering the Dow Jones Industrial Average ($DOWI) to new highs above 40,000 today, there's no time like the present to take a look at some underappreciated consumer-facing stocks.
Fortunately, brokerage firm Morgan Stanley (MS) recently identified six standout consumer and retail stocks that have the market reputation and financial standing to navigate through what it describes as a “triple whammy” of headwinds facing the group. Here are their top picks.
#1: Walmart
Founded in 1962 by the legendary Sam Walton, Walmart (WMT) is a multinational retail corporation that operates a chain of hypermarkets, discount department stores and grocery stores. It is the largest retailer in the world by revenue, and its market cap stands at a mammoth $482 billion.
WMT stock is up 21.7% on a YTD basis, with the shares popping nearly 7% intraday as investors react to its Q1 earnings beat. A Dividend King with 50 years of consistent growth to its name, the stock yields 1.39%.
Overall, analysts have a consensus rating of “Strong Buy” for WMT stock, with a mean target price of $65.09 - indicating upside potential of about 2.2% from current levels. Out of 30 analysts covering the stock, 21 have a “Strong Buy” rating, 4 have a “Moderate Buy” rating, and 5 have a “Hold” rating.
#2: PepsiCo
Based out of Purchase, NY, global beverages giant PepsiCo (PEP) has been in the refreshments business since 1893. Its large portfolio of brands across various categories includes Pepsi and Gatorade in beverages, Frito-Lay and Doritos in convenience foods, and Naked Juice and Tropicana in nutrition. Its market cap currently stands at an impressive $246.7 billion.
Pepsi's share price is up 7.5% on a YTD basis. PEP is also a Dividend King, and offers a dividend yield of 3%.
Analysts rate PEP stock a “Moderate Buy,” with a mean target price of $191.50. This denotes an upside potential of roughly 5% from current levels. Out of 18 analysts covering the stock, 11 have a “Strong Buy” rating and 7 have a “Hold” rating.
#3: Colgate-Palmolive Company
Founded in 1806 as William Colgate & Company in New York City, and merged with Palmolive Peet Company in 1928, Colgate-Palmolive (CL) is a multinational consumer goods company with a broad portfolio of household and personal care products across various categories. Some of its prominent brands include its eponymous toothpaste, Tom's of Maine, and Speed Stick deodorant, among others. CL currently commands a market cap of $77.5 billion.
CL stock is up 18.7% on a YTD basis. Another Dividend King, Colgate stock offers a dividend yield of 2.12% backed by 60 years of growth.
Analysts have a consensus rating of “Strong Buy” for CL stock, with a mean target price of $96.23 - which denotes an upside potential of about 2% from current levels. Out of 17 analysts covering Colgate stock, 11 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating and 4 have a “Hold” rating.
#4: McDonald's
Serving up its delectable burgers and fries since 1940, McDonald's (MCD) is the world's largest fast-food restaurant chain. Other than burgers and fries, it also sells chicken sandwiches, breakfast items, soft drinks, and milkshakes. Also a big real estate player, the company commands a market cap of $197 billion currently.
MCD stock, which offers a dividend yield of 2.44%, is down 7.3% on a YTD basis.
Overall, analysts have an average rating of “Moderate Buy” for MCD, with the mean target price of $316.19 indicating an upside potential of about 15.1% from current levels. Out of 30 analysts covering the stock, 17 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 11 have a “Hold” rating.
#5: Wayfair
Founded in 1978 as CSN Stores, Boston-based Wayfair (W) is now a leading online retailer specializing in home goods and furniture. They offer a vast selection of products across various categories, including furniture, home decor, kitchen & dining, bath and outdoor. Its market cap currently stands at $8.55 billion.
Wayfair stock is up 11.9% on a YTD basis.
Overall, analysts have a consensus rating of “Moderate Buy” for Wayfair stock. The mean target price of $73.10 suggests expected upside potential of about 6% from current levels. Out of 30 analysts covering the stock, 16 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, and 12 have a “Hold” rating.
#6: Hasbro
We conclude our list with Hasbro (HAS), which was founded in 1923. Hasbro is a global play and entertainment company with a well-known portfolio of brands across various categories, including Toys (Monopoly, Play-Doh); Consumer Products; and Entertainment. Its market cap is currently $8.42 billion.
Hasbro's share price is up 16.7% on a YTD basis, and it offers a dividend yield of 4.63%.
Overall, analysts rate HAS stock a “Moderate Buy,” with a mean target price of $66.90. This indicates an upside potential of about 12.2% from current levels. Out of 10 analysts covering the stock, 4 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 5 have a “Hold” rating.
