6 Consumer Defensive Stocks Gurus Are Putting in Their Easter Baskets

These companies have moderate to high GF Scores

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Apr 15, 2022
Summary
  • Consumer defensive companies tend to perform well regardless of market conditions as their products are considered necessities.
  • Multiple gurus owned these stocks as of the end of the fourth quarter.
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Ahead of Easter weekend celebrations, a Christian holiday that commemorates the death and resurrection of Jesus Christ, investors may be interested in companies that benefit from egg hunts and other festivities as high inflation, interest rates and the Russia-Ukraine conflict continue to affect markets.

According to a National Retail Federation survey, American consumers will spend, on average, $169.79 each this year on everything from church attire, a special meal and candy to cards and flowers. The collective amount of $20.8 billion is down slightly from last year’s forecast of $21.6 billion.

Based on these trends, the GuruFocus Aggregated Portfolio, a Premium feature based on 13F filings as of the end of fourth-quarter 2021, found consumer defensive companies that are popular with gurus, not to mention the Easter Bunny, include Mondelez International Inc. (

MDLZ, Financial), Tyson Foods Inc. (TSN, Financial), General Mills Inc. (GIS, Financial), The Hershey Co. (HSY, Financial), McCormick & Co. Inc. (MKC, Financial) and Cal-Maine Foods Inc. (CALM, Financial).

These types of companies also typically do well in all sorts of market environments as their products are considered necessities.

Mondelez International

With a combined equity portfolio weight of 9.9%, 22 gurus are invested in Mondelez International (

MDLZ, Financial).

The Deerfield, Illinois-based company known for its popular Cadbury Eggs, Milka, Toblerone and Sour Patch Kids candy products, as well as Oreo and Chips Ahoy cookies, has an $88.13 billion market cap; its shares closed at $63.72 on Thursday with a price-earnings ratio of 20.96, a price-book ratio of 3.14 and a price-sales ratio of 3.14.

The GF Value Line suggests the stock is fairly valued currently based on its historical ratios, past financial performance and future earnings projections.

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The GF Score is also high at 87 out of 100, receiving high marks for momentum and profitability as well as middling ranks for growth, financial strength and GF Value. As such, Mondelez has good future outperformance potential.

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GuruFocus rated Mondelez’s financial strength 6 out of 10. Although the company has issued approximately $512 million in new long-term debt over the past three years, it is at a manageable level due to having sufficient interest coverage. The Altman Z-Score of 2.6 also indicates the company is under some pressure.

Supported by an expanding operating margin, strong returns on equity, assets and capital that outperform more than half of competitors and a high Piotroski F-Score of 7 out of 9, meaning business conditions are healthy, the company’s profitability scored an 8 out of 10 rating. It also has a predictability rank of one out of five stars. According to GuruFocus data, companies with this rank return an average of 1.1% annually over a 10-year period.

Of the gurus invested in Mondelez,

Diamond Hill Capital (Trades, Portfolio) has the largest stake with 0.66% of its outstanding shares. Hotchkis & Wiley, Elfun Trusts (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also have significant positions in the stock.

Tyson Foods

Holding a combined portfolio weight of 9.76%, 13 gurus have positions in Tyson Foods (

TSN, Financial).

The processor of chicken, beef and pork products, which is headquartered in Springdale, Arkansas, has a market cap of $34.60 billion; its shares closed at $95.45 on Thursday with a price-earnings ratio of 9.42, a price-book ratio of 1.88 and a price-sales ratio of 0.70.

According to the GF Value Line, the stock is fairly valued currently.

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It also has a strong GF Score of 94 out of 100, based on high ranks for growth and profitability as well as middling marks for financial strength, momentum and GF Value. As such, Tyson has high outperformance potential.

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Tyson’s financial strength was rated 7 out of 10 by GuruFocus. In addition to adequate interest coverage, the Altman Z-Score of 3.79 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.

The company’s profitability fared better, scoring a 9 out of 10 rating. In addition to operating margin expansion, the company is supported by returns that outperform industry peers, consistent earnings and revenue growth, a high Piotroski F-Score of 8 and a four-star predictability rank. GuruFocus says companies with this rank return, on average, 9.8% annually.

With a 1.17% stake, the

T Rowe Price Equity Income Fund (Trades, Portfolio) has the largest position in Tyson Foods. Other top guru shareholders include Yacktman Asset Management (Trades, Portfolio)’s funds, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Ray Dalio (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio).

General Mills

Eleven gurus have positions in General Mills (

GIS, Financial), representing a combined equity portfolio weight of 1.76%.

The Minneapolis-based company known for its Pillsbury and Betty Crocker baking products and Cheerios cereal has a $42.71 billion market cap; its shares closed at $70.92 on Thursday with a price-earnings ratio of 18.94, a price-book ratio of 4.35 and a price-sales ratio of 2.34.

Based on the GF Value Line, the stock appears to be modestly overvalued currently.

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The GF Score is also a robust 85 out of 100, having received high marks for momentum and profitability as well as middling ranks for growth, financial strength and GF Value. As a result, General Mills has good future outperformance potential.

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GuruFocus rated General Mills’ financial strength 4 out of 10. Although the company has sufficient interest coverage, the Altman Z-Score of 2.87 indicates it is under some pressure. Value creation is also occurring since the ROIC eclipses the WACC.

The company’s profitability scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that top a majority of competitors and a moderate Piotroski F-Score of 5, meaning business conditions are typical for a stable company. It also has a 2.5-star predictability rank. GuruFocus data shows companies with this rank return an average of 7.3% annually.

Simons’ Renaissance Technologies has the largest stake in General Mills with 0.71% of its outstanding shares. Gabelli, Dalio,

Mairs and Power (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Grantham also own the stock.

Hershey

Hershey (

HSY, Financial) is held by nine gurus with a combined equity portfolio weight of 1.88%.

The confectioner headquartered in Pennsylvania, which manufactures many popular Easter candy products like Reese’s Peanut Butter Eggs, Whopper’s Robin Eggs and Hershey’s chocolate bunnies, has a market cap of $46.45 billion; its shares closed at $225.98 on Thursday with a price-earnings ratio of 31.78, a price-book ratio of 16.89 and a price-sales ratio of 5.23.

The GF Value Line suggests the stock is modestly overvalued currently.

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The GF Score is high at 82 out of 100, getting high marks for growth and profitability, a middling rank for financial strength and low grades for momentum and GF Value. Therefore, Hershey has good future outperformance potential.

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Hershey’s financial strength was rated 5 out of 10 by GuruFocus. While assets are building up at a faster rate than revenue is growing, the robust Altman Z-Score of 5.45 indicates the company is in good standing. The ROIC also exceeds the WACC, indicating value is being created.

Boosted by an expanding operating margin and strong returns that top a majority of industry peers, the company’s profitability scored a 9 out of 10 rating. In addition to a moderate Piotroski F-Score of 6, Hershey has a 3.5-star predictability rank on the back of consistent earnings and revenue growth. Companies with this rank return, on average, 9.3% annually based on GuruFocus research.

Of the gurus invested in Hershey, Simons’ firm has the largest stake with 1.55% of its outstanding shares. Dalio,

Steven Cohen (Trades, Portfolio), Mairs and Power (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Greenblatt, among others, also have positions.

McCormick

Representing a combined equity portfolio weight of 0.10%, eight gurus are invested in McCormick (

MKC, Financial).

Known for its spices, herbs, seasonings, extracts and BBQ rubs, the Baltimore-based company has a $27.23 billion market cap; its shares closed at $101.57 on Thursday with a price-earnings ratio of 36.67, a price-book ratio of 5.92 and a price-sales ratio of 4.31.

According to the GF Value Line, the stock is fairly valued currently.

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It has a strong GF Score of 90 out of 100, driven by high ranks for growth and profitability as well as middling marks for financial strength, momentum and GF Value. As a result, McCormick has high outperformance potential.

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GuruFocus rated McCormick’s financial strength 5 out of 10. Despite the company issuing new long-term debt over the past several years, it is at a manageable level due to sufficient interest coverage. The Altman Z-Score of 2.95 indicates it is under some pressure, however, since assets are building up at a faster rate than revenue is growing. The WACC is also surpassed by the ROIC, suggesting good value creation is occurring.

The company has a 9 out of 10 profitability rank on the back of an expanding operating margin and strong returns that outperform a majority of competitors. McCormick also has a moderate Piotroski F-Score of 4. The four-star predictability rank is on watch despite steady earnings and revenue growth.

With 0.03% of outstanding shares, Simons’ Renaissance Technologies is the company’s largest guru shareholder.

Tom Russo (Trades, Portfolio), Dalio, Greenblatt, Jones, Gabelli, Mairs and Power (Trades, Portfolio) and Catherine Wood (Trades, Portfolio) also have positions in McCormick.

Cal-Maine Foods

Cal-Maine Foods (

CALM, Financial) is held by five gurus with a combined equity portfolio weight of 1.12%.

Producing and selling the eggs necessary for children to dye and the Easter Bunny to hide, the company headquartered in Jackson, Mississippi has a $2.6 billion market cap; its shares closed at $54.36 on Thursday with a price-earnings ratio of 146.92, a price-book ratio of 2.58 and a price-sales ratio of 1.72.

Based on the GF Value Line, the stock appears to be modestly overvalued currently.

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The GF Score is also moderate at 61 out of 100, getting high marks for financial strength and profitability, but low ranks for growth, momentum and GF Value. As such, Cal-Maine is likely to have poor future performance potential.

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Cal-Maine’s financial strength was rated 8 out of 10 by GuruFocus. In addition to debt-related ratios that are outperforming versus other companies, the egg producer’s robust Altman Z-Score of 9.03 indicates it is good standing.

The company’s profitability scored a 7 out of 10 rating despite having a declining gross margin and returns that underperform more than half of its industry peers. Cal-Maine is also being supported by a moderate Piotroski F-Score of 4, but the one-star predictability rank is on watch as a result of revenue per share declining over the past several years.

Diamond Hill has the largest stake in Cal-Maine with 5.33% of its outstanding shares. Simons’ firm,

Third Avenue Management (Trades, Portfolio), Dalio and Charles Brandes (Trades, Portfolio) also have positions in the stock.

Other popular picks

Additional consumer defensive companies that were broadly held by gurus as of the fourth quarter included The Kraft Heinz Co. (

KHC, Financial), Conagra Brands Inc. (CAG, Financial), Sanderson Farms Inc. (SAFM, Financial), JM Smucker Co. (SJM, Financial), Hormel Foods Corp. (HRL, Financial) and Kellogg Co. (K, Financial).

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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