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Stock Strategist

Consumer Defensive: Lofty Valuations Persist, but a Handful of Bargains Remain

At home and abroad, consumer defensive firms look to offset muted growth prospects by boosting their brand intangible assets and cost edge.

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  • Trading about 2% above our fair value estimate, we view the consumer defensive space as a bit overvalued. 
  • Consumer product manufacturers haven't been immune to the slowdown in emerging markets, particularly with broad weakness in Latin America and Asia. Despite the near-term hit, we still contend that firms offering brands that resonate with local consumers will be the best positioned to capture outsize growth in these regions longer term.
  • In light of challenges to reignite top-line gains, firms throughout the space are likely to remain laser-focused on extracting excess costs to bolster earnings growth.
  • Defensive retailers are also taking steps to expand their store bases and move to more of an omni-channel presence (such as e-commerce) to offset intense competition and slowing growth prospects.

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Erin Lash does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.