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5 Consumer Stocks Funds Love - views
BALTIMORE (Stockpickr) -- When it comes to drivers of the economy, the consumer is king.
Consumer spending makes up around 70% of gross domestic product in the U.S., making consumer cash one of the important factors in the perceived health of the economy. With tailwinds starting to kick up on the economy in 2012, high profile investors are loading up on consumer stocks; today, we’ll look at five firms that are getting bought by institutions en masse.
To do that, we’re focusing on 13F filings. Institutional investors with more than $100 million in assets are required to file a 13F -- a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F.
In total, 3,091 firms filed the form for the most recent completed quarter, and by comparing one quarter’s filing with another, we can see how any single fund manager is moving their portfolio around.
So why the focus on consumer stocks?
All told, consumer staples was the most heavily-added sector to institutional portfolios in the last quarter; funds increased their stake in the sector by 0.9%. That increased buying is significant, especially when you remember that we’re talking about nearly $960 billion in assets spread across those 3,091 institutional investors. A sentiment shift toward consumer staples could help buoy shares of these firms in the New Year.
With that, let’s take a closer look at the five names they’re buying the most.
When it comes to consumer staples, boring is often best. Take Kimberly-Clark (KMB), for example. Shares of the $29 billion tissue and towel maker saw the biggest increase in market value in institutional portfolios last quarter, climbing $1.38 billion between position increases and capital gains. It doesn’t get any more boring than tissues, diapers and towels, but institutions added 2 million shares of Kimberly-Clark to their portfolios last quarter.
Even though Kimberly-Clark isn’t the most exciting name out there, its brand portfolio is made up of stalwart names like Kleenex, Scott, and Huggies -- household name brands that capture huge amounts of consumer dollars. While the company hasn’t been completely immune from market pressures (namely inflation costs and the threat of cheaper private labels), it’s managed to disprove most of the selling arguments that some investors have made in the past few years.
One of Kimberly-Clark’s biggest attributes is cash -- the firm generates a lot of it. And in turn, KMB passes that cash onto shareholders; right now, the KMB sports a 3.82% dividend yield, making it one of the top-yielding consumer non-durables stocks. Income investors should take a second look at this stock in 2012.
Another name that’s popular on grocer’s shelves is General Mills (GIS), a consumer staple that saw its shares rally 13.2% in the last 12 months. Like Kimberly-Clark, General Mills is a consumer staple that got heavily picked up by institutions in the last quarter. In total, funds picked up 5.2 million shares of the food manufacturer in the last quarter.
General Mills is probably best known for its breakfast cereal brands -- which include Cheerios, Chex and Wheaties -- but the firm owns a broad portfolio of food labels, from Yoplait yogurt to Pillsbury baked goods and Haagen-Dasz ice cream. That brand diversification and scale mean that the firm is able to manage costs effectively and lobby grocers for prominent placement across its offerings. As a result, General Mills’ brands are able to dominate their respective categories and offer up large net margins for GIS.
Like Kimberly-Clark, General Mills is a dividend payer, with a 3.03% yield right now (and one of the top-yielding food and beverage stocks). While rising input costs could derail some of the firm’s cash-generation capabilities over the next few years, increased offerings in emerging markets and a growing portfolio of product offerings should help GIS scale up enough to more than offset those challenges.
General Mills, one of TheStreet Ratings' top-rated food stocks with an A buy rating, shows up on recent lists of 21 Stock Picks That Experts Agree On and Goldman Sachs' Consumer Stock Best Buys for 2012.
Whole Foods Market
Now we move from the grocery store shelves to the grocery store itself. Whole Foods Market (WFM) was another name that got significant institutional buying last quarter, with funds buying 6.9 million shares of the $13 billion company. Whole Foods weighs in as the country’s largest retailer of natural and organic foods, a niche that’s been particularly popular in the last several years.
As consumers get increasingly concerned about the origin of the foods they eat, organics and natural foods are likely to continue to grow in popularity. While that does provide some threat, since it’s likely to drive traditional retailers to continue to expand their own organic and natural offerings, investors shouldn’t be too concerned about encroachment from traditional grocers at this point.Whole Foods’ selection and upscale positioning should continue to resonate well with its core demographic of affluent, food-conscious consumers.
The result of the firm’s positioning is profitability that eclipses the rest of the grocery industry and growth rates that traditional stores can’t match. Better still, the recession proved that both of those metrics are stickier than analysts originally expected. Increasing private label brands on its shelves should help to boost the firm’s margins in the mid- to long term.
Whole Foods, one of TheStreet Ratings' top-rated food and staples stocks with an A buy rating, shows up on recent lists of 6 Good Buys for a Portfolio and 9 Rich-Kid Stocks Bucking the Terrible Economy.
Anheuser-Busch InBev (BUD) is one of the biggest brewers in the world, with more than 200 beer brands in its massive product portfolio. The firm’s crown jewels include names like Budweiser, Stella Artois, and Beck’s and secure its top spot in most of the countries it operates in and a 25% share of the global beer market.
Consolidation has been a big theme in the brewing industry for the last decade, including the 2008 merger of Anheuser-Busch and InBev. In total, the move was a positive for U.S. shareholders who bought positions in the combined firm, increasing exposure to attractive beer markets like Brazil and China. Emerging markets currently contribute close to half of the firm’s revenues -- and they should steadily increase as premium brand beer consumption ratchets higher in those markets.
While currency conversion risks are a consideration that investors should take into account (in this market especially), exposure to currencies in growing countries should give Anheuser-Busch InBev advantages over massive peers with larger euro exposure.
Institutions bought 16.2 million shares of BUD last quarter, increasing their ownership stake in the company by 32%. The stocks shows up on a list of Hedge Funds' Best Picks for 2012.
Church & Dwight
Arm & Hammer, Xtra, Nair, and Orajel are just a few of the massively successful consumer brands that drive sales for Church & Dwight (CHD), a mid-cap household goods stock. The firm’s biggest brand is also its most boring: Arm & Hammer. Close to 90% of American households buy Arm & Hammer products, a level of consumer stickiness that few other consumer stocks can boast.
Because of that scale, cost management is crucial -- to date, management has been successful at shaving costs down in the years since the recession. With net margins ringing in the double-digits, the firm is able to generate large amount of cash on a recurring basis.
The downside to Church & Dwight’s scale is growth. Because its markets here at home are nearing saturation, the firm will need to continue offering new uses for its products and pushing into foreign markets if management wants to keep shareholders satisfied.
That said, funds have clearly been satisfied with Church & Dwight in the last quarter: they purchased more than 1.1 million shares of the firm in that period. With shares up more than 32% in 2011, we’ll see whether this firm is able to use novelty and international exposure to turn out a repeat performance this year.
Church & Dwight is also one of TheStreet Rating's top-rated household products stocks, with an A+ buy rating.
To see these stocks in action, check out the at Funds’ Favorite Consumer Staples portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.