Skip to Content
Morningstar
Get 14 Days Free
Quarter-End Insights

Consumer Defensive: Top-Shelf Picks for a Cautious Spending Environment

As consumer spending slows, investors should focus on companies that enjoy strong brand intangible assets or sustainable cost advantages.

Adam Fleck
Mentioned: , , , , , , , ,
  • The consumer defensive sector still trades roughly 1% above our fair value estimate, but we see a handful of undervalued industries and companies.
  • Consolidation remains a theme in the consumer staples arena, with the Heinz-Kraft merger highlighting the opportunity for rationalizing brands and improving profitability.
  • We believe companies in the defensive retail space build competitive advantages through pricing power and cost advantages; the market seems to be offering a discount for wide-moat  Wal-Mart (WMT).
  • We don't think e-cigarettes present a substantial threat to tobacco companies' economic moats, because it could take 20 years for the product to gain full adoption, in our opinion. 

The consumer defensive sector trades at a median price/fair value of 1.01, although it is slightly less overvalued than our overall coverage universe, which trades at a median price/fair value of 1.03. Investment opportunities remain, but many of the stocks we consider the most undervalued are seeing severe foreign currency headwinds from the strong U.S. dollar (including top pick  Nestle (NSRGY)), threats to their growth from slowing international consumer spending (which has also plagued Nestle), or are going through fundamental business changes (such as  Procter & Gamble (PG)) that could continue to challenge these companies' revenue and earnings over the near term (albeit with the long run looking quite a bit rosier).

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.