The retail sector can be broadly divided into consumer staples and discretionary. As the name suggests, staples typically imply essential products used by consumers. On the other hand, discretionary implies luxury or non-essential products. Both these segments are a key GDP growth driver for the U.S. economy.
In general, high interest rates have negatively impacted consumer spending. However, with the prospects of multiple rate cuts in the next 12 to 18 months, it’s a good time to consider cheap consumer stocks to buy. As consumer spending potentially accelerates, companies in the sector are positioned to benefit.
The focus of this column is on two blue-chip consumer staple ideas and once growth stock that’s from the consumer discretionary segment. If an investor has a portfolio of these stocks with equal weightage, it’s likely to beat index returns over the next 36 months.
Let’s discuss these cheap consumer stocks to buy and hold for healthy total returns.
Altria Group (MO)
Altria Group (NYSE:MO) stock finally seems to be gaining momentum after an extended period of sideways movement. Year-to-date, MO stock has trended higher by almost 14%. However, the stock remains undervalued at a forward P/E ratio of 9. Additionally, the stock offers a dividend yield of 8.53%.
It’s worth noting that Altria is in a phase of business portfolio transformation. The company is gradually increasing its focus on the non-smoking product category. However, the smokable segment remains the cash flow driver.
An important point to note is that Altria has seen a positive impact from business transformation investments. As an example, the company continues gaining market share in the oral tobacco category.
Further, MO reported a shipment volume of NJOY consumables at 10.9 million units. The retail share of NJOY in the U.S. multi-outlet and convenience channel increased to 4.3%.
Therefore, with positive business metrics, I am optimistic about the long-term outlook for Altria. The valuation gap is a good opportunity to accumulate.
PepsiCo (PEP)
PepsiCo (NASDAQ:PEP) is another interesting name among consumer stocks to buy. One reason is that the 2.96% dividend yield stock has been sideways for the last 12 months. Valuations look attractive and the factor of relatively subdued growth is the discount on the stock.
For Q1 2024, PepsiCo reported organic revenue growth of 2.7% on a year-on-year (YOY) basis. For the full year, the company guided for 4% organic growth and 8% growth in earnings per share.
An important point to note is that PepsiCo reported a total revenue of $92 billion for the last financial year. Of this, $36 billion was from international markets. However, only 12% of revenue was from Asia Pacific and AMESA (Egypt, India, Saudi Arabia, Pakistan, and South Africa). There is ample scope for growth in these geographies.
The second point to note is that between 2019 and 2023, PepsiCo reported beverages growth at a CAGR of 7%. For the same period, the food segment growth was 10%. With a well-balanced portfolio of beverages and snacking products, the overall growth outlook is positive.
Miniso Group (MNSO)
Miniso Group (NYSE:MNSO) stock is among the undervalued consumer stocks to buy. The stock has trended higher by over 45% in the last 12 months. However, a forward P/E ratio of 24 indicates potential for further upside. Additionally, MNSO stock offers a dividend yield of 1.67%, and I expect healthy dividend growth in the coming years.
Miniso recently reported Q1 2024 results and revenue increased by 26% YOY to $515.7 million. Further, adjusted EBITDA margin was 25.9%, higher by 200 basis points YOY. The company’s stellar growth was backed by aggressive retail expansion. Miniso ended the quarter with 6,630 stores globally.
It’s worth noting that Miniso wants to open 900 to 1,100 stores annually between 2024 and 2028. The company expects revenue growth at a CAGR of more than 20% during this period. Therefore, the outlook is positive and there is ample scope for value creation.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
