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Consumer staples will ride pandemic’s second wave, say traders

Traders point to consumer staple stocks as likely winners during the pandemic, as consumers don’t have many places to spend their money aside from the grocery store.

During an interview with CNBC’s Trading Nation, top analysts from Blue Line Capital and Tocqueville Asset Management said that they favored the sector amid a potential second wave of the virus in the US, as it is well positioned to take advantage of a shift in consumer trends.

John Petrides, portfolio manager at Tocqueville Asset Management, said that investors should “pick and choose” their stocks within the sector, citing a “perfect storm for consumer staples to rally”, as the coronavirus prompts buyers to stockpile essential goods.

Petrides added that these stocks were also attractive due to their “inherently low-beta, less volatile, and in a low-interest-rate environment, they throw off good dividends”.

Meanwhile, Bill Baruch (pictured), president and founder of Blue Line Capital, agreed with Petrides’ view of the sector, but also cautioned investors about the long-term performance of consumer staple companies, adding that “their margins are growing because they don’t have the coupon”.

“They don’t have to take any discount to any of their products because where else are the consumers spending their money but at the grocery store? So, I think you have exposure to this space, but you have to pick and choose your spots”, Baruch said.

Brokers at Jefferies upgraded beverage conglomerate Keurig-Dr Pepper and added Procter & Gamble to its list of franchise picks, saying the two are riding long-term “mega-trends” in consumer behavior.

However, Bernstein analysts, are bearish on some of the pantry plays that outperformed at the start of the coronavirus pandemic, downgrading General Mills, Campbell Soup, Kellogg and J.M. Smucker to “underperform.”

consumer staples ETF YTD performance

The consumer staples sector, as reflected by the S&P 500 Consumer Staple SPDR ETF, has recouped most of the losses it took during the pandemic sell-off of mid-February, even though it is still down 7.2% for the year.

The performance of the exchange-traded fund has outpaced that of the Dow Jones Industrial Average by nearly 3% while lagging behind the S&P 500 by 2% so far during 2020.

Ever since the coronavirus outbreak gained traction in the US, consumer staple stocks have rallied in response to higher sales, as consumers have no choice other than staying at home, while spending much of their money on groceries and other essential goods.

Baruch highlighted that not all of the players in this industry are favorably positioned to take advantage of this trend, citing General Mills (GIS) as a potential pick due to a positive price setup based on the stock’s technical indicators.

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Alejandro Arrieche

Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.