Procter & Gamble (PG), Estee Lauder (EL) and Constellation Brands (STZ) can weather any economic slowdown in the short term while offering long-term growth opportunities, according to Citi in a new research note. The bullish view of these consumer-facing companies is consistent with our view and comes as defensive stocks have fallen out of favor in 2023, with many investors turning to battered tech stocks instead. What Citi Thinks Citi analysts chose our three club holdings among their top-rated picks and began reporting on US beverages, home and personal care products. While these quality names were temporarily under pressure in a tougher economic climate with still elevated inflation, analysts argued that they offer “compelling long-term growth stories at reasonable valuations”. PG YTD Mountain P & G (PG) YTD Performance Like many multinational companies, Procter & Gamble has been weighed down by a strong US dollar, making its products more expensive for international consumers. The company was also pressured by higher raw material, material and freight costs. But these inflationary tendencies appear to be abating. Additionally, the company’s product price increases don’t appear to be impacting sales. In its guidance for the third quarter of fiscal 2023, P&G expects an overall after-tax decline of $3.7 billion, or $1.50 per share — down from its previous headwind forecast of $3.9 billion -dollars, or $1.57 per share. At the same time, the consumer goods powerhouse, whose premium brands include Tide, Pampers, and Gillette, was able to raise prices on its products with minimal resistance — contributing to organic sales growth of 5% in the fiscal second quarter and 4% by estimates. on 5% organic sales growth in the current fiscal third quarter. Given these factors, Citi believes the company is “in a better position to navigate a challenging macro environment.” Additionally, analysts see an “attractive entry point” to buy P&G shares, which are down more than 7.5% year-to-date after the company posted overall poor second-quarter results in late January. Citi has a $160-per-share price target for the stock, which is up 2% on Friday to about $140. STZ YTD Mountain Constellation Brands (STZ) YTD Performance Citi also said it was time to buy Constellation Brands, the company behind Mexican beers Corona, Modelo and Pacifico. Shares are down about 2% so far in 2023 after a rough December after the beer brand experienced subdued demand due to inclement weather in key markets like California. The company said at the time that near-term headwinds were improving to spur “mid-term beer sales growth.” Analysts at Citi have a $265 price target for the stock, which fell slightly to just under $227 on Friday. EL YTD Mountain Estee Lauder (EL) YTD Performance Citi also estimates a “strong sales/margin recovery” from Estee Lauder as China’s economy continues to recover. Around a third of the company’s turnover comes from China. Estee Lauder, a leading maker of luxury skincare, makeup and fragrance products, has struggled during the Covid pandemic as people around the world stayed at home and in China long after many major economies like the USA lockdowns persisted. However, this has recently changed since Beijing abandoned its zero-Covid policy. As the Chinese economy continues to recover, Estee Lauder’s business in the region “is poised to accelerate from here,” said Citi, which has a $295 price target on the stock. Shares of the cosmetics giant rose more than 1% to nearly $253 on Friday. EL is up about 2% year-to-date. What the Club Thinks Bottom Line: We welcome Citi’s bullish calls on Procter & Gamble, Constellation Brands and Estee Lauder, for similar reasons we hold both stocks. These names are more resilient to a slowdown in discretionary spending as demand for their products persists even in an economic slowdown. Procter & Gamble’s pricing power has allowed the company to weather high input costs, and if those additional costs come down, it will ease the pressure on margins. We weren’t bothered by the temporary dip in Constellation Brands’ beer trends. The company has proven it has a long history of beer growth and we expect demand to continue even in an economic slowdown. CEO Bill Newlands will be speaking at a consumer conference next week where we will have an update on business development. We continue to own Estee Lauder for China reopening and believe that as Beijing eased its zero-Covid policy, the stock can work its way back to pre-2022 lockdown levels. Jim Cramer previously said: “The opening up of China is a really big thing for people going out. Don’t ignore it. Buy Estee Lauder.” (Jim Cramer’s Charitable Trust is Long EL, PG & STZ. For a full list of stocks click here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling any stock in his charitable foundation’s portfolio. When Jim spoke about a stock on CNBC television, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS GOVERNED BY OUR TERMS AND CONDITIONS AND PRIVACY POLICY ALONG WITH OUR DISCLAIMER. NO OBLIGATION OR OBLIGATION SHALL BE OR CREATED BY YOUR RECEIVING OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC RESULT OR PROFIT IS GUARANTEED.
Tide, a laundry detergent manufactured by Procter & Gamble, is seen on a store shelf in Miami, Florida, October 20, 2020.
Joe Raedle | Getty Images
Procter & Gamble (PG), Estee Lauder (EL) and Constellation Brands (STZ) can weather any economic slowdown in the short term while offering long-term growth opportunities, according to Citi in a new research note. The bullish view of these consumer-facing companies is consistent with our view and comes as defensive stocks have fallen out of favor in 2023, with many investors turning to battered tech stocks instead.