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Barron's Goldman Sachs Has 3 New Staple Stock Favorites

Consumer staples stocks had a difficult 2023, although the picture has somewhat brightened this year.

Goldman Sachs argues that despite some ongoing challenges, a few household product makers could really clean up in 2024—although ironically not Clorox.

The S&P 500 rose more than 24% last year, and the Nasdaq Composite soared 43% as big tech stocks saw massive gains that characterized investor appetite for risk.

The speculative mood and higher interest rates were a double blow to staples—their slow-but-steady performance shines during uncertain times, and dividends looked less attractive as bond yields were rising.

The upshot was the Consumer Staples Select Sector SPDR ETF went nowhere all year amid the broader market rally.

However, the fund has turned over a new leaf with the calendar—XLP is up about 2.2% year to date. That is still behind the S&P 500’s gains, but at least it is progress, and analysts have been getting somewhat more upbeat about the space. High profile players such as PepsiCo, Anheuser-Busch InBev, and Church & Dwight have been upgraded in 2024.

Goldman Sachs analyst Bonnie Herzog assumed coverage of a number of household product makers on Friday, and writes the group still has headwinds to work through. But that doesn’t mean investors need to ignore the sector.

Part of the problem is that for such a staid category, staples have had a roller coaster few years. Demand soared for cleaning and household products during 2020 and 2021, when the pandemic had everyone at home and frantically disinfecting.

That swiftly gave way to supply chain constraints and inflation, which allowed companies across the board to take up pricing. That didn’t always protect margins, however, and eventually led to consumers buying less to stick to their budgets.

As the dust clears in 2024, staples stocks are likely looking at fewer price hikes this year, although that should allow people to once again buy more, lifting volumes. For her part, Herzog cautions discounts and promotions, common prepandemic, are likely to return in this new normal, “as supply chains are restored and the competitive environment heats up.”