When you hear consumer stocks in an environment like this one, you automatically think of the negatives. After all, consumers are in a sticky situation as they grapple with persistently high inflation, wages that can’t keep up, and the threat of a prolonged recession. If they’re not already restricted with their finances, they’re battening down the hatches in preparation for a dip in their disposable income. That makes it much harder to sell things to them, significantly denting the prospects for any company that relies on strong consumer attitudes to thrive.
Perhaps the best indicator of whether or not a company can plow through a period of economic uncertainty is brand power. Companies with strong brands that people are willing to pay extra for are invaluable in times of economic trouble. These strong brands mean the companies can pass on rising input costs without too much of an impact on volumes.
So with that said, here are the best consumer stocks to buy that have strong brands amid this turbulent situation.
British American Tobacco (BATS)
There is no question that tobacco consumption is in decline and has been for decades. That means companies like British American Tobacco (NYSE:BATS) have to pedal harder to keep their revenue growth afloat. That’s fancy for increased prices, and it’s something that British American Tobacco’s strong brand power has supported. The results have been operating margins well beyond the norm for consumer goods companies. That suggests the group should be able to thrive even as conditions worsen.
There’s some space for growth as well. Not only is British American Tobacco working to build out a line of healthier, next-gen products, but it also boasts significant exposure to emerging markets. This is an important catalyst for the stock, particularly as customers in the US start to trade down to less expensive products to cope with rising costs.
There are plenty of headwinds to consider, but British American Tobacco looks like a strong bet among consumer stocks. And the hefty dividend yield looks well-covered and makes waiting out some bumps in the road much more palatable.
Diageo (DEO)
Diageo (NYSE:DEO) is a great choice among consumer stocks is a good choice for many reasons, not least among them being its impressive stable of brands including Guinness beer and Tanqueray gin. These recognizable names have allowed the group to push prices over 7% higher so far without giving much up in terms of volumes. That’s impressive by any measure and underscores just how valuable a good name is when uncertainty reigns.
Diageo is also well-positioned for growth in some key markets. The group is in a strong spot to capitalize on the growing middle class in emerging markets like China and India. As consumers in those parts of the world see their disposable income balloon, they’ll be looking for more premium products— which Diageo is ready to serve.
Management is expecting to see sales and profit growth in the mid-to-high single digits over the next few years, a target that looks attainable considering the group’s performance so far. Its strong position looks likely to carry it through a murky year ahead and drive strong returns for investors in the long term.
Coca-Cola (KO)
In a world where consumer stocks are fighting to keep their heads above water, Coca-Cola (NYSE:KO) is killing it. The group’s first-half results saw organic revenue rise in the double digits, and that’s a testament to its impressive brand power. The bulk of that growth came from higher average selling prices. So far there’s been a negligible impact on volumes, though that could change if prices continue to trend higher.
Its business model, which relies on partnerships with bottling companies, means costs are relatively low. It also means the group can focus its attention on selling the drink mix itself and building out its brand image. The group’s also built out a portfolio beyond its namesake soft-drink, with coffee, and sports drinks now also sitting under the umbrella.
Coca-Cola isn’t immune to the cost of living crisis, but as consumer stocks go, it’s pretty insulated. The group looks likely to continue outperforming which will put it in a strong position once the economic uncertainty starts to clear.
On the date of publication, Marie Brodbeck held BTI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.