Adding consumer staples to your holdings is an important step in order to diversify your portfolio and add stability.
Consumer staples generally consist of goods that consumers can’t go without, even if money is tight. This also extends to products that consumers may prioritize over other desires, such as tobacco.
Even in times of economic expansion and lengthy bull markets, it’s still a good idea to have core stocks that provide your portfolio with income and stability.
It’s even more crucial now, however, as the economy starts to slow down and investors and economists alike are unsure of what’s next for the market.
Due to this heightened uncertainty, many investors have already flocked to consumer staples, adding a hefty premium and making it even more important that if you are going to make an investment, you find the right companies at cheap valuations.
Three of the top consumer staples to buy today are Alimentation Couche-Tard Inc (TSX:ATD.B), Alcanna Inc (TSX:CLIQ) and Empire Company Limited (TSX:EMP.A).
Alimentation Couche-Tard is a global operator of convenience stores and gas stations. Both segments of its business are extremely resilient throughout poor economic conditions.
Gas stations especially will see little impact to its volumes and given Couche-Tard’s global diversification, it can mitigate risk if it’s a regional issue.
It has more than 16,000 stores across 27 countries and sells more than 43 million gallons of fuel every day.
73% of Couche-Tard’s revenue comes from fuel sales, although only 43% of its gross profit is generated from fuel. It’s not that Couche-Tard’s fuel margins aren’t strong — quite the opposite — its convenience margins are extremely strong.
There’s no reason that Couche-Tard shouldn’t continue its impressive execution and growth in the short-term. When the market is ready to correct, it give your portfolio plenty of stability.
Alcanna is an operator of liquor stores and just recently cannabis. Although liquor doesn’t seem like a consumer staple, studies have shown otherwise, because alcohol sales don’t fall as much as would be expected during recessions and in some cases, sales actually rise.
The company has more than 230 liquor stores as well as five cannabis stores, with a multi-year plan to bring more into the mix. Its target is to have more than 100 cannabis stores by the end of 2021.
While the majority of its stores are located in Alberta, it also has a number of locations in B.C and Alaska.
The company has mastered branding, offering higher-end liquor retailers as well as having stores that are convenience oriented in addition to its discount liquor stores. These brands allow Alcanna to capture all segments of the market.
Despite it being an exciting growth company, it’s still a top consumer staple and will be only minimally affected during periods of economic decline.
Empire is in the food distribution business as well as having other strategic investments. Empire’s main business, Sobeys, has more than 1,500 retail locations, with stores in every province. It also has roughly 350 retail fuel operations.
It’s been growing its food retailing business by adding differentiated brands to drive a wider customer base. The company is now opening FreshCo stores beyond Ontario and looking to add more consumers by buying up Farm Boy.
As well as the growth projects, Empire was able to grow organically, increasing same-store sales excluding fuel, by 2.4% in the first quarter of fiscal 2020.
Its adjusted earnings per share jumped dramatically from $0.37 last year to $0.49 this year as it improved its margins and integrated Farm Boy into its operations.
Grocery stocks are usually the best consumer staples because no matter what, people have to eat. Although margins may be impacted and total sales may fall slightly, the business will hardly see any problems and should continue to operate normally throughout a recession.
Adding consumer staples to your portfolio is necessary for all investors to give you exposure to resilient businesses and protect your wealth from serious market trouble.
The protection of your wealth is even more important than the growth of it, as when you lose money, it takes that much longer to make it all back.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. Alimentation Couche-Tard is a recommendation of Stock Advisor Canada.