By Jacob Sonenshine
Many stocks have been rebounding, but investors have largely left consumer staples out. They appear attractive -- but choose wisely.
While the S&P 500 is up 4% from the Iran war-related bottom reached Monday, and most sectors have gained, staples are down 0.5%. The reason is that buyers have preferred riskier stocks, which took the largest dives and have the most to recoup as markets become more confident about a resolution in the Middle East and a subsequent drop in oil prices.
Now, the broader market bounce has favored the riskier stocks, leaving staples closer to their lows.
This continues a larger trend. The Vanguard Consumer Staples Index Fund Exchange-Traded Fund is up 25% in the past five years, less than half of the S&P 500's gain of over 60%. One problem is that a chunk of the fund consists of consumer packaged goods companies that are losing ground to smaller companies that are offering healthier products to appeal to consumers' health push.
That's why it's time to consider the staples stocks that aren't in the CPG category -- but do appear more cheaply priced than before.
A starting point is to consider those nonfood businesses. Look for the ones that haven't seen analyst's 2026 sales estimates fall as much as the 4% aggregate reduction for the staples fund in the past year, according to FactSet, signifying their demand trends are more stable. Avoid companies in the midst of ongoing merger negotiations.
The ones to look at are Procter & Gamble, Colgate-Palmolive, Philip Morris, Altria, Dollar General and Dollar Tree.
Colgate-Palmolive is particularly interesting. The stock is down 14% since just before the Iran war began in late February, and now trades at just over 21 times expected earnings for the coming 12 months, down from 25 times before then war. The current multiple is only 9% above the S&P 500's roughly 20 times, below the 17% premium it has traded at on average in the past five years, according to our calculations of FactSet data.
Meanwhile, its fundamentals look fine. Analysts have lifted this year's sales forecasts by 2% in the past year to $21.3 billion.
Deutsche Bank analyst Steven Powers writes in a note this week that with staples having fallen because of the war, some are worth a close look. He upgraded Colgate to Buy, and says "Despite a volatile cost/operating backdrop, we believe Colgate has ample profit and loss [statement] flexibility to weather current conditions, and more importantly is making the right investments."
To Powers' point, Colgate's 21% operating profit margin last year, and its less than $300 million of annual interest expense, enables it to modestly grow marketing spend to almost $3 billion this year. Management is trying to re-spark growth in its North America business, which could go a long way for earnings given that, historically, that business is one of its higher margin ones.
The company said on its fourth quarter earnings call it can drive growth in North America this year, partly because of easier comparisons from a down year in 2025, but also because of new versions of products in oral and skin care.
Overall, analysts expect growth in North America -- and the entire business. They forecast 4% annual sales growth to $22 billion in 2027. Recently the growth has come from mild price increases and high growth in some emerging markets. The company's plan is to keep the higher prices coming, partly by driving shoppers toward the more premium products, such as Optic White toothpaste.
Analysts expect the resulting sales growth to keep gross margins stable this year. The hope is that, eventually, the company can nudge margins higher and, with stock buybacks, reach the almost 10% earnings per share growth it saw in several years in the past.
Take a look at some of these safer staples. The ones that get it right with consumers could see decent stock gains -- at a time when expectations about the economy are changing every day.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 01, 2026 14:10 ET (18:10 GMT)
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