Consumer Sentiment Hits New Low: 3 Consumer Staple Stocks to Buy

Volatility returned to Wall Street this week after markets showed signs of recovery earlier this month. The ongoing volatility is being triggered by tariff fears that could push the economy into a recession, while high inflation has continued to weigh on consumer sentiment.

Consumer sentiment fell for the fifth straight month in May, reaching one of its lowest points on fears of an economic slowdown. With the Federal Reserve unlikely to implement interest rate cuts in the near term, the stock market may continue to remain volatile for a longer period.

Given the uncertainty, it may be a wise decision to focus on safe-haven stocks such as consumer staples. In this regard, Philip Morris International Inc. PM, Nomad Foods Limited NOMD and Zevia PBC ZVIA appear to be attractive options. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Also, these stocks are from the low-beta category (beta greater than 0 but less than 1). Hence, the recommended approach is to invest in low-beta stocks with a high dividend yield and a favorable Zacks Rank.

Consumer Sentiment Continues to Take a Hit

The University of Michigan's preliminary consumer sentiment index dropped to 50.8 in May, declining 2.7% from April. This is the second-lowest level recorded in the survey’s 75-year history, with the lowest point coming in June 2022 when inflation peaked to a four-decade high.

Since January, consumer sentiment has declined by nearly 30%. At the same time, short-term inflation expectations have worsened, with the projected 12-month inflation outlook rising to 7.3% in May from 6.5% in the prior month. The five-year inflation outlook also increased slightly, climbing to 4.6% from 4.4%.

The Federal Reserve halted interest rate cuts in January due to renewed signs of inflation rising. Prior to that, the Fed had lowered rates by 100 basis points, as inflation eased significantly following a period of aggressive monetary tightening. Recently, inflation has shown signs of easing again — the consumer price index rose by only 0.2% in April compared to the previous month and was up 2.3% year over year, the smallest annual increase since February 2021.

Even though inflation appears to be on track to meet the Fed’s 2% target, the central bank remains cautious. It is unlikely to resume rate cuts until officials are certain inflation is on a clear downward path. Several investors still expect the Fed to make at least two rate cuts of 25 basis points each this year, though the first one likely won’t come before September.

Tariff Uncertainties Continue

President Donald Trump announced sweeping tariffs in April on all U.S. trading partners, sparking concerns about a potential global trade war that could drag the economy into a recession. The announcement triggered a sharp sell-off in the financial markets.

However, the situation has since calmed down, and the markets have recently seen a rebound following Trump’s decision to temporarily halt tariffs for most countries. Just last week, the Trump administration announced a 90-day trade truce with China, the United States' largest trading partner, effectively delaying additional tariffs.

The United States had initially slapped tariffs of up to 145% on Chinese goods, prompting China to retaliate with 125% tariffs on American products. While negotiations between the two nations are ongoing, the final outcome of a potential trade deal remains unclear. Consumers are unsure how the tariffs will ultimately be structured and what impact they will have on the economy. This uncertainty has been weighing heavily on consumer sentiment in recent weeks.

3 Low-Beta Consumer Staple Stocks With Upside

Philip Morris International

Philip Morris International Inc. is progressing well with its business transformation in the face of consumers' rising health consciousness and stern regulations to dissuade smoking. To this end, PM has been expanding its reduced risk products (RRPs) or smoke-free products category, as evident from the success of IQOS (a heating tobacco device) that counts among one of the leading RRPs in the industry.

Philip Morris International has an expected earnings growth rate of 13.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.6% over the past 60 days. PM currently carries a Zacks Rank #2. Philip Morris International has a beta of 0.50 and a current dividend yield of 3.09%.

Nomad Foods Limited

Nomad Foods Limited manufactures and distributes frozen foods primarily in the United Kingdom, Italy, Germany, Sweden, France and Norway. NOMD’s portfolio of frozen food brands includes Birds Eye, Iglo and Findus. Nomad Foods Ltd. is headquartered in Feltham, the United Kingdom.

Nomad Foods has an expected earnings growth rate of 7.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4% over the last 60 days. NOMD presently sports a Zacks Rank #1. Nomad Foods has a beta of 0.81 and a current dividend yield of 3.80%.

Zevia PBC

Zevia PBC is focused on addressing health challenges resulting from excess sugar consumption by offering a portfolio of zero-sugar, zero-calorie, naturally sweetened beverages. 

Nomad Foods has an expected earnings growth rate of 38.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 20.8% over the last 60 days. ZVIA presently has a Zacks Rank #2. Zevia has a beta of 0.76.

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This article originally published on Zacks Investment Research (zacks.com).

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