The 1 Stock Up Double Digits as the Market Crumbles
Consumers watched prices rise everywhere from the grocery store to the gas pump, as well as housing and utilities as inflation continued to exceed estimates.
Meanwhile, markets shook as fears of an impending recession rose...
And while the broader indexes and most sectors struggled, stocks in one sector have quietly racked up double-digit gains.
Where am I looking for potential winners while just about everyone is focused on economic doom and gloom?
The Consumer Staples sector.
During times of fear, Consumer Staples are one of the top defensive sectors investors flee to for safety. And for good reason…
When times get tough and shopping habits change — whether it’s due to runaway inflation, recession or even a pandemic — the one thing people continue to spend money on are everyday necessities.
Check out how the Vanguard Consumer Staples Index Fund ETF (NYSEArca: VDC) has done over the past year compared to the SPDR S&P 500 ETF Trust (NYSEArca: SPY), which tracks the S&P 500.
Over the past 12 months, VDC is actually up 5% while the S&P 500 is down almost -9%.
Buying the newest tech or taking a vacation might not be in the cards, but keeping one’s family healthy and fed will always be a top priority.
That also means that because these items are necessities, companies can and will pass price increases due to inflation along the consumer…
And in case you haven’t heard, part of the reason prices at the grocery store keep rising is because we’re facing a global food shortage due to the war in Ukraine…
The Agricultural Price Index was 19% higher on July 15, 2022, than it was in January 2021. And the prices for corn and wheat are 15% and 24% higher, respectively, than they were in January 2020.
Not only did the war between Russia and Ukraine disrupt trade patterns and production, it led to countries imposing trade-related policies designed to increase their own domestic supplies and reduce prices, which has worsened the food shortage.
And not to be the bearer of bad news, but the outlook is going to get even worse over the coming months…
Russia and Belarus are major fertilizer exporters. So the war and resulting trade disruptions will lead to less supply and higher prices, which will no doubt get passed along to consumers around the world.
That’s why the three companies I cover in this report aren’t just in the Consumer Staples sector but, more specifically, they’re all food producers…
General Mills
What began as a flour mill, General Mills Inc. (NYSE: GIS) is a multinational manufacturer of consumer food products. It’s responsible for big brand names like Annie’s, Betty Crocker, Cheerios, Nature Valley, Pillsbury, Progresso and Yoplait.
The company beat earnings-per-share estimates in three out of the four quarters by at least 7.5%, and by as much as 11.4%. It also beat on revenue three of the four quarters, with its sole miss coming in just 0.19% under estimates.
And if you look back at the Great Recession, when even major automotive companies were on the brink of bankruptcy, General Mills rose 29%.
Here’s how GIS compares to SPY over the past year…
I expect shares of General Mills to head back toward the low $70 level and trade between $70 and $80 for some time before breaking out once again.
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