With the market shouldering what appears to be an
excess of optimism, investors who don't want to see their
portfolios crumble may want to consider a long-term defensive
game plan. Consumer-staples companies are a classic choice
here. But instead of heading straight for company metrics,
why not start our search by delving into fundamentals on the
sector's bread and butter -- the actual consumer?
Deeper pockets abroad
We'll be doing some globetrotting in this analysis, but
it makes sense to start at home. Now, for all the distressing
stats on the U.S. consumer, some U.S.-focused consumer names
have been doing just fine recently. Witness the
most recent quarterly resultsof packaged-foods provider
J.M. Smucker , for instance. Other companies,
however, have suffered meaningful volume declines as Joe and
Jane Six-Pack run leaner pantries or look to save a buck with
cheaper store brands.
Will these penny-pinching habits persist?
Hmm, let's see. The tediously titled statistic known
as "U.S. household debt service payments as a percent of
disposable personal income" may be improving recently, but
the figure remains near multidecade highs. Meanwhile, as of
May, there were nearly six unemployed workers per available
job -- oh, and Deutsche Bank sees almost half of U.S.
mortgages falling underwater by 2011.
In short, yeah, U.S. consumers might remain tightfisted
for quite some time. And if trying to pick the companies that
will actually be able to grow in the U.S. feels too
stressful, then it's time to go global.
Starting with the developed world, European consumers seem
in somewhat better shape. As of year-end 2008, gross
household debt in the EU area stood at 94% of gross
disposable income, compared to a much larger 130% for the
U.S. And unlike U.S. consumer sentiment, Eurozone confidence
hasn't fallen off its 2009 highs in the past months. Still, I
wouldn't necessarily assume that Europeans will outspend
their U.S. counterparts, or even that sales will decline less
severely. After all, Europeans' more sensible habits arguably
held down their household debt in the first place.
But don't fret. Emerging markets still look promising.
Brookings Institution researcher Homi Kharas sees the world's
middle class expanding to 52% of the total population by
2020, up from roughly 30% now. And the near-term outlook
isn't bad, either: The International Monetary Fund sees
emerging markets growing 1.5% this year and 4.7% the
following. That beats the pants off expected U.S. growth.
With these facts in mind, I put together the following
table, which includes two popular consumer names that might
not be so familiar to U.S. investors. None of these companies
are formal recommendations, but they're a good place to start
researching.
Company
Product Categories
Market Cap
Dividend Yield
% ex-North America Sales
% Emerging Markets Sales
Nestle
(OTC BB: NSRGY.PK)
Packaged food & water, nutrition, pet care,
pharma
$143.0 B
3.2%
73.2%*
Not available
Danone
(OTC BB: DANOY.PK)
Fresh dairy, bottled water, nutrition
$35.2 B
3.2%
91.2%
> 40%
Unilever
(NYSE: UL)
Home & personal care, packaged food
$75.8 B
3.4%
< 33%
47%
Colgate-Palmolive
(NYSE: CL)
Home & personal care, pet nutrition
$35.8 B
2.5%
Approx. 75%
Not available
Procter & Gamble
(NYSE: PG)
Home & personal care, paper products, pet
nutrition Continued... |