By Jacob Sonenshine

For a sector known for safety, consumer staples have been living dangerously. Investors should recognize that not all of the stocks are created equal.

It's been a tough year for consumer staples. The Vanguard Consumer Staples exchange-traded fund is down 1.7% this year, while all other S&P 500 sectors were in the green as of Wednesday's close. Part of the problem is that investors have mostly stayed away from defensive sectors, instead pouring money into technology stocks and sectors that benefit from a strong economy, including financials.

But staples have fared far worse than other defensive sectors, partly because some of the largest companies in the sector have failed to compete with more successful peers or health trends and new personal products. In the red for the year are PepsiCo, Hershey, Mondelez International, General Mills, Keurig Dr Pepper, Kraft Heinz, Conagra Brands, McCormick, Target, Procter & Gamble, and Colgate-Palmolive.

If investors had forgotten the hole the sector is in, they got a reminder when Kimberly-Clark announced on Monday that it planned to pay more than $40 billion for Tylenol maker Kenvue. The market hated the deal. Kimberly's stock fell 15% the day of the news, adding to the 25% drop it had suffered over the previous five years due to slow growth in its personal-care categories. Kimberly hopes the deal will spark growth by unlocking sales and cost savings, but Kenvue has its own issues -- slow sales and legal exposure to talc and Tylenol -- and Kimberly will likely need to borrow money to finance the nonstock portion of the deal.

The decline has made staples a good deal cheaper than they were before. The Vanguard ETF trades at 20 times 12-month forward earnings, down from a 2025 peak of 21 times and below the S&P 500's 23 times. Many are cheap for a reason, but some are truly bargains, especially those with improving fundamentals. Companies that have had their earnings estimates rise over the course of 2025 and operate in businesses that aren't in decline include Coca-Cola, Monster Beverage, stevia maker Ingredion, egg producer Cal-Maine Foods, Costco Wholesale, Kroger, Casey's General Stores, Instacart, W-D 40, and Altria.

They also include Marlboro maker Philip Morris International, which is transitioning from cigarettes to smokeless products. It now trades at just 18 times earnings, a 21% discount to the S&P 500, below its three-year average of 16%. The discount has grown despite analysts lifting 2025 earnings estimates by 5.3% this year, as the company has beaten earnings expectations during the last four quarters. Smoke-free sales, which hit $4.4 billion in the third quarter, grew 17.7% year over year, as people adopt the new products. That outpaces the 4.3% growth to $6.4 billion in the combustible business, as higher prices offset declines in the number of cigarettes sold. Smoke-free products also earn relatively high profits, helping the company's operating margin to rise just over a percentage point, while earnings per share rose 17%, higher than the average staple and even aggregate S&P 500 earnings growth.

That's the kind of staple to believe in.

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

November 07, 2025 02:00 ET (07:00 GMT)

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