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Quarter-End Insights

Consumer Defensive: Upside in Staples Companies With Long-Term Cost-Cutting Opportunities

Despite the recent market pullback, the consumer defensive sector in aggregate still trades at a slight premium to our fair value estimate, but we still see several pockets of opportunities among high-quality companies.

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  • The consumer defensive sector trades roughly 1% above our fair value estimate, but we see a handful of undervalued industries and companies. 
  • We believe the market undervalues  Mondelez (MDLZ) and see upside stemming from the wide-moat manufacturer's cost-savings initiatives.
  • The market currently offers a discount on global beverage behemoths  Coca-Cola (KO) and  PepsiCo (PEP), in our opinion. We expect long-run earnings growth to rebound despite near-term challenges.
  • Although we see few economic moats in the European defensive retail industry, French retailer  Casino Guichard-Perrachon (CO) offers exposure to faster-growing Latin America, and trades a sizable margin of safety, in our opinion.

R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.