Consumer Stocks

Consumer Stocks

Consumer Stocks are those of companies that make everything from cars to toilet paper.

If you look at your own spending habits, you can gauge which companies fit into the consumer discretionary sector by considering whether you purchase the company's goods because you need them or because you want them.

Those products that you purchase because you want them, and that you could bypass if you did not have the available income, fit into the consumer discretionary sector.

The consumer sector in the stock market generally is broken into two parts:

  • durables
  • non-durables

Durables include appliances and furniture, things that last a long time.

Non-durables include food, alcohol and tobacco - products that consumers use regularly and replace frequently.

Non-durables often fall into the Growth Stock category. Because consumers will not stop eating or drinking just because the economy slows down. But they might think twice before buying a new television.

Because of their commonplace nature, consumer stocks can sometimes be overlooked by investors who are drawn to more “exciting” opportunities like smartphone technology, Internet start-ups, or the latest restaurant IPO.

But when it comes to investing, “boring” can often be better, and no sector embodies that spirit more than consumer staples.

Although it is populated by companies that seem plain vanilla and don’t excite as much with new technologies, consumer staples has had the second-highest return of the 10 economic sectors since 1962.During the past 50-plus years, consumer staples has had an annualized return of 12.9%.

That’s almost 200 basis points (2.0%) per year better than the technology and consumer discretionary sectors, and it also beat the broad stock market (as measured by the Russell 3000 Index) by a similar margin.

In addition to producing the second-highest return, consumer stocks have had the second-lowest volatility of any market sector since 1962, meaning it has produced more consistent returns from one year to the next.

This is likely driven by the more consistent nature of the demand for everyday staples items such as toothpaste and diapers, which people tend to buy in similar amounts regardless of the ups and downs of the economy.

Because of this, investments in consumer stocks have tended not to lose as much during bear markets as investments in other sectors. And during the past 50 years, consumer staples has experienced fewer bear markets (a correction of more than 20%) than the broad stock market overall, and is tied with utilities for the fewest bear markets of any equity sector.


Less Risky


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For investors seeking to reduce risk, consumer stocks can lend stability to an equity portfolio due to the relatively consistent nature of consumer demand and the consistent earnings for staples companies.

The consumer staples sector has characteristics that can make it an attractive building block for Dividend income-oriented investors.

Consumer staples tend to have stronger dividend yields and dividend growth than other equity sectors, and their yields are often competitive with those of non-equity investments.

Also, unlike most bonds where the interest payments are fixed, many staples stocks have successfully increased their dividends every year, including in difficult economic periods like 2008 and 2009. In fact, the average staples company has increased its dividend at an annual rate of 8% over the past 20 years.

Any of the stock trading systems may work well for you, depending what strategy fits you and your personality.

It should be noted that the consumer sector is an important one, as consumer spending accounts for about 2/3 of the economic output.

There are ample stock opportunities that may help the consumer staples sector continue to outperform the broader U.S. equity market in the months and years ahead.

Additional volatility in global economies, interest rates, and currencies could drive investor uncertainty and would likely benefit the sector, which has historically been an attractive target in a flight to safety.

In any event, consumer staples should continue to benefit from its reputation for steady growth, dividend income, and low volatility.

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