Forget Overrated Tech Companies and Look at These Consumer Staples for True Returns
Joshua is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Substantial long term returns can be found in simple consumer staples. As the recent Facebook (NASDAQ: FB) fiasco shows, growth stocks do not always workout. With instability in Europe, China, and America cyclical stocks may start to trend downward. Copper is an important industrial commodity which is one signal of economic activity and it has been in a bear market over the past year. Consumer staples can offer steady returns and a reflectively stable environment for investors. Consumers have to eat regardless of the current economic state. Purchasing a new car or a bigger house may be put off, but plastic containers and cleaning supplies are necessities.
High growth commonly means high dilution. Facebook has a large number of stock options which will be able to vested over the coming months. These special stock options will be listed as normal income and many employees will be forced to sell a large number of their shares in order to pay for their suddenly enormous tax bill. These insiders will only place more selling pressure and further depress the stock. Instead, investors should look at quality consumer staples which have solid revenue, profits, and dividends thus creating a symbiotic situation for the corporation and the investors.
Tupperware Brands Corp (NYSE: TUP) offers revenue, earnings, and dividend growth. Year over year the second quarter in 2012 showed an overall 5% increase in sales. Excluding changes in currency contracts, emerging markets saw an increase in sales over 20%. Goodwill is approximately 13% of assets. For those looking for international exposure this company derives approximately 60% of their sales from the emerging markets. The dividend is not extremely large but at a 2.7% yield it is much better than the short term treasury. In the coming years the company plans to purchase shares in order to bring the debt-to-EBITDA to 1.5. Tupperware is not anywhere near the size of Procter and Gamble or Johnson and Johnson but never the less Tupperware offers a strong brand sold throughout developed and developing markets.
Procter and Gamble (NYSE: PG) is a much larger company and more focused on developed markets. Approximately 60% of their sales over the past couple years have come from North America and Western Europe. Slowly Asia continues to create a larger percentage of their sales. Given the current slowdown in China this is a positive and negative aspect. Beauty products along with home and fabric care make up around half of net earnings. This bodes well for Procter and Gamble. Though customers can be forced to downgrade to a cheaper brand of makeup or detergent it is rare that they would completely stop buying such products. In 2012 the company posted another year of sales increases though operating margins declined by 3.3% relative to the previous year. This company has paid a dividend for over 120 years and it is currently yields around 3.3%. The possibility of great volatility and sudden gains isn't very likely with this stock but it does offer a strong history of dividend payments and decades of experience in consumer products.
Rubbermaid (NYSE: NWL) is another consumer staples company which has a strong base in the United States and is expanding internationally. Management recently reorganized the company into consumer oriented and corporate oriented segments and a smaller baby and parenting segment. Sadly, they have been affected by the recent downturn in Europe as 5.7% of core sales are in the Europe, Middle East, and Africa region. At the same time sales in North America, Latin America and Asia Pacific increased and thus limited the negative effects of Europe. The consumer segment declined while the professional and baby and parenting segments saw an increase in overall sales. This dividend yield is similar to that of Tupperware Brands at 2.3%. This company does not offer the clout of Procter and Gamble but it has a number of cleaning products which are known throughout the developed and developing world.
Facebook may promise endless growth, but a declining growth rate and declining PE ratio mean that investors are likely to end up holding the short end of the stick. Strong consumer staples are different. They continue to grow sales at or greater than inflation and use their international presence to decrease the effect of a single region on their bottom line. They reward investors with dividends and capital appreciation. For continued long term returns these companies offer strong brand names and value for consumers, investors, and employees.
MrCanadian1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Tupperware Brands and has the following options: short OCT 2012 $55.00 puts on Tupperware Brands. Motley Fool newsletter services recommend Facebook and The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.