Stock up on Consumer Staples?

12/23/2016 8:00 am EST

Focus: STRATEGIES

Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

The Trump Trade into financials and industrials, combined with a spike in bond yields, has hit the consumer staples hard and Wall Street has fallen out of love with these stocks, notes Bryan Perry, editor of Dividend Investing Weekly.

And while no one wants to be caught up in an outgoing tide, it would behoove investors with a time horizon longer than a year to consider dollar-cost averaging into some of these down-but-definitely-not-out blue chip stocks that are part of everyone’s everyday life.

Buy stock in companies that make things that people need: In today's fast-paced, hyper-focused investment world, it's advice that can seem rather quaint and antiquated.

But it's advice that some of history's greatest investors — strategists like Warren Buffett — have used to build incredible track records over the years.

Quantitative guru James O'Shaughnessy, author of What Works on Wall Street, found that from 1968 through 2009, consumer staples averaged compound annual returns of 13.6%, beating the next-best sector (financials) by 1.2 percentage points per year.

And, the sector had the second-lowest standard deviation out of the market's 10 sectors; the only one that was less volatile was utilities.

So while the hunt for the next high tech winner consumes the hearts and minds of millions of investors, taking stock of what occupies the shelves in the kitchen, bathroom, pantry, and laundry room is a proven course of building steady, long-term wealth and a growing stream of dividends.

Only recently has the consumer staples sector provided a 10% correction, taking the Consumer Staples Select Sector SPDR (XLP) back down to key support at $50.

Sure, the sector could continue to lag for months and the long-term chart suggests that, in a major correction, XLP could easily decline to $45. But as the world population expands, so will the fortunes of this blue-ribbon sector.

An ever-growing global population and an ever-widening middle class in emerging markets bode very well for the future of great American brands in a global economy.

My view is that it’s a good time to start picking up some of these world-class stocks. Shares of General Mills (GIS) topped out at $73 and now trade at $63 with a growing dividend yield of 3.1%. 

I see S.J. Smucker (SJM) trading at $125, down from $155, and it makes me wonder whether people buying jellies, jams and peanut butter.

You can also cast a net over the entire consumer staples sector with a purchase of some shares in XLP, sit back and enjoy the ride. History says it’s a smooth one.

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