5 Consumer Defensive Stocks Gurus Are Celebrating Independence Day With

These food and beverage companies were broadly held by investors as of the 1st quarter

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Jun 30, 2022
Summary
  • PepsiCo, Coca-Cola, Kraft Heinz, Tyson Foods and Constellation Brands have high guru ownership.
  • Consumer defensive stocks typically perform well regardless of market environment since their products are considered necessary.
  • The stocks are all fairly valued currently based on the GF Value Line.
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Ahead of Independence Day weekend in the U.S., consumers are preparing to celebrate with cookouts and fireworks displays.

Out of the total $7.7 billion that is projected to be spent to commemorate the Fourth of July, the National Retail Federation found that most will be allocated to food for backyard BBQs and picnics. The planned per-person spending is expected to be an average of $84.12 for food items.

Based on these trends, the GuruFocus Aggregated Portfolio, a Premium feature based on 13F filings as of the end of the first quarter, found consumer defensive companies that provide packaged foods and beverages and are popular with gurus include PepsiCo Inc. (

PEP, Financial), Coca-Cola Co. (KO, Financial), The Kraft Heinz Co. (KHC, Financial), Tyson Foods Inc. (TSN, Financial) and Constellation Brands Inc. (STZ, Financial).

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

PepsiCo

With a combined equity portfolio weight of 27.53%, 24 gurus are invested in PepsiCo (

PEP, Financial).

The Purchase, New York-based company, which produces a variety of popular soft drinks and snacks like Lays potato chips, Doritos and Tostitos, has a $231.23 billion market cap; its shares were trading around $166.41 on Thursday with a price-earnings ratio of 22.88, a price-book ratio of 12.72 and a price-sales ratio of 2.88.

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 83 out of 100, receiving high marks for profitability and growth as well as middling ranks for momentum, financial strength and GF Value. As such, PepsiCo has good future outperformance potential.

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GuruFocus rated PepsiCo’s financial strength 5 out of 10. In addition to adequate interest coverage, the high Altman Z-Score of 4.19 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 with an 8 out of 10 rating. Although the operating margin is in decline, the returns on equity, assets and capital top a majority of competitors. PepsiCo also has a moderate Piotroski F-Score of 6 out of 9, indicating conditions are typical for a stable company, and a predictability rank of two out of five stars. According to GuruFocus research, companies with this rank return an average of 6% annually over a 10-year period.

Of the gurus invested in PepsiCo,

Yacktman Asset Management (Trades, Portfolio) has the largest stake with 0.31% of its outstanding shares. Ray Dalio (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and several other gurus also have notable positions in the stock.

Coca-Cola

Nineteen gurus have positions in Coca-Cola (

KO, Financial), representing a combined equity portfolio weight of 25.70%.

The beverage company headquartered in Atlanta, which has well-known brands like Coke, Sprite, Fanta, Powerade, Fairlife and Dasani under its umbrella, has a market cap of $270.85 billion; its shares were trading around $62.48 on Thursday with a price-earnings ratio of 26.26, a price-book ratio of 10.89 and a price-sales ratio of 6.77.

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

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It has a GF Score of 79 out of 100. While it got high points for profitability, the company’s growth, financial strength, GF Value and Momentum all received middling ranks. As such, Coca-Cola is likely to have average performance going forward.

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Coca-Cola’s financial strength was rated 5 out of 10 by GuruFocus. In addition to sufficient interest coverage, the Altman Z-Score of 4.45 indicates the company is in good standing. It is also creating value since the ROIC eclipses the WACC.

The company’s profitability fared even better, scoring an 8 out of 10 rating on the back of an expanding operating margin, strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 7, indicating conditions are healthy. Despite recording a decline in revenue per share over the past five years, Coca-Cola has a one-star predictability rank. GuruFocus data shows companies with this rank return, on average, 1.1% annually.

With a 9.23% stake,

Warren Buffett (Trades, Portfolio) is Coca-Cola’s largest guru shareholder. Other top guru investors include Dalio, Jeremy Grantham (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), Simons’ firm, Steven Cohen (Trades, Portfolio) and the T Rowe Price Equity Income Fund (Trades, Portfolio).

Kraft Heinz

Kraft Heinz (

KHC, Financial) is held by 16 gurus with a combined equity portfolio weight of 9.22%.

The Chicago-based company, which is known for Heinz ketchup and Kraft mac and cheese, has a $46.79 billion market cap; its shares were trading around $38.23 on Thursday with a price-earnings ratio of 38.62, a price-book ratio of 0.94 and a price-sales ratio of 1.85.

Based on the GF Value Line, the stock appears to be fairly valued currently.

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The GF Score of 71 out of 100 suggests the company will likely have average future performance on the back of high points for momentum and profitability, a middling rank for financial strength and low grades for growth and GF Value.

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GuruFocus rated Kraft Heinz’s financial strength 5 out of 10, weighed down by weak interest coverage and a low Altman Z-Score of 1.03 that warns it could be in danger of bankruptcy if it does not improve its liquidity. The company is also struggling to create value as the WACC exceeds the ROIC.

The company’s profitability scored a 7 out of 10 rating. In addition to a declining operating margin, its returns underperform over half of its competitors. Kraft Heinz also has a moderate Piotroski F-Score of 6 and, despite recording a decline in revenue per share over the past 12 months, a one-star predictability rank.

Buffett is Kraft Heinz’s largest guru shareholder with a 26.61% stake.

First Eagle Investment (Trades, Portfolio), Dalio, Cohen and Simons’ firm also have sizable holdings in the stock.

Tyson Foods

Holding a combined portfolio weight of 10.18%, 15 gurus have positions in Tyson Foods (

TSN, Financial).

The processor of beef, chicken and pork products, which is headquartered in Springdale, Arkansas, has a market cap of $31.11 billion; its shares closed at $86.04 on Thursday with a price-earnings ratio of 7.75, a price-book ratio of 1.63 and a price-sales ratio of 0.61.

The GF Value Line suggests the stock is fairly valued currently.

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Based on its GF Score of 92 out of 100, the company has high outperformance potential going forward. Tyson received high points for profitability, growth and financial strength and middling marks for GF Value and momentum.

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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 3.96 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC is also higher than the WACC, so value creation is occurring.

The company’s profitability also fared well with 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 an average of 9.8% annually.

Of the gurus invested in Tyson Foods, the T. Rowe Price Equity Income Fund has the largest holding with a 0.86% stake.

Yacktman Asset Management (Trades, Portfolio) and Simons’ firm also have significant positions in the company.

Constellation Brands

Representing a combined equity portfolio weight of 4.58%, 13 gurus are invested in Constellation Brands (

STZ, Financial).

The New York-based company, which produces and markets beer, wine and spirits, has a $44.59 billion market cap; its shares were trading around $235.65 on Thursday with a price-book ratio of 3.8 and a price-sales ratio of 5.16.

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

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The GF Score of 78 out of 100 indicates the company is likely to have average future performance, having gained top marks for profitability and momentum as well as middling grades for growth, financial strength and GF Value.

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GuruFocus rated Constellation’s financial strength 5 out of 10 on the back sufficient interest coverage. The Altman Z-Score of 3.23 also indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC is also surpassed by the WACC, so it is struggling to create value.

The company’s profitability scored an 8 out of 10 rating. While the operating margin is expanding, Constellation’s returns are underperforming versus competitors. It also has a moderate Piotroski F-Score of 6 and a one-star predictability rank that is on watch.

Bill Nygren (Trades, Portfolio) is the company’s largest guru shareholder with a 0.83% stake. Grantham, Dalio, Diamond Hill, Simons’ firm, PRIMECAP Management (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Robert Karr (Trades, Portfolio) and several other gurus also have positions in Constellation Brands.

Other popular picks

Additional consumer defensive companies that were broadly held by gurus as of the three months ended March 31 included Archer-Daniels Midland Co. (

ADM, Financial), General Mills Inc. (GIS, Financial), Ingredion Inc. (INGR, Financial), Molson Coors Beverage Co. (TAP, Financial) and Conagra Brands Inc. (CAG, Financial).

Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

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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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