Procter & Gamble (PG), Estee Lauder (EL) and Constellation Brands (STZ) could navigate any economic downturn in the short term while offering long-term growth opportunities, according to Citi in a new research note. The bullish call on these consumer-tied companies aligns with our view and comes after many investors have piled into beaten-down tech names instead of favoring defensive stocks in 2023. What Citi thinks Citi analysts chose our three club holdings from among their top-rated picks – beginning coverage in US beverages, household and personal care products. While these high-quality names have seen temporary pain in a difficult economic environment with still-high inflation, the analysts argued that they present “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 stronger US dollar, making its products more expensive for international consumers. The company is also pressured by higher commodity, material and freight costs. But those inflationary trends appear to be abating. Additionally, the increase in the prices of the company’s products does not seem to have any impact on the sales. In its fiscal 2023 third-quarter guidance, P&G expects an overall after-tax drag of $3.7 billion, or $1.50 per share, — smaller than its prior outlook for headwinds of $3.9 billion, or $1.57 per share. At the same time, the consumer products powerhouse, whose high-quality brands include Tide, Pampers and Gillette, has been able to raise prices on its products with minimal pushback — contributing to 5% organic sales growth in the fiscal second quarter and 4% organic sales growth. Estimated 5% growth in organic sales in the third quarter of the current fiscal year. With these factors in mind, Citi sees the company as “better positioned to navigate through a challenging macro environment.” In addition, analysts see an “attractive entry point” to scoop up P&G shares, which have plunged more than 7.5% in late January following the company’s overall fiscal second-quarter earnings call. Citi has a $160-per-share price target on the stock, which rose 2% to about $140 on Friday. STZ YTD Mountain Constellation Brands (STZ) YTD Performance City also said it is time to buy Constellation Brands, the company behind Mexican beers Corona, Modelo and Pacifico. Shares are down about 2% so far in 2023, largely after December, after poor weather in key markets like California dented demand for the beer brand. The firm said at the time, that improving short-term headwinds would help drive “medium-term bearer top-line growth.” Analysts at Citi have a price target of $265 on the stock, downgraded slightly on Friday to $227. EL YTD Mountain Estee Lauder (EL) YTD Performance Citi anticipates “strong topline/margin recovery” from Estee Lauder as China’s economy reopens. China accounts for about a third of the company’s revenue. Estee Lauder, a leading maker of luxury skincare, makeup and fragrance products, struggled during the COVID pandemic, as people around the world remained at home, and the reopening of several major economies like the US, long after the lockdown in China continued. However, this has been changing recently as Beijing has abandoned its zero-Covid policy. So, as the Chinese economy continues to reopen, Estee Lauder’s business in the region “looks set to accelerate from here,” said Citi, which has a price target of $295 on the stock. Shares of the cosmetics giant rose more than 1% on Friday to nearly $253. EL has seen a nearly 2% year-over-year gain. What the Club Thinks The bottom line: We’re pleased to see Citi’s bullish calls on Procter & Gamble, Constellation Brands, and Estee Lauder, which is why we hold each stock. These names are more resilient to a discretionary spending downturn because demand for their products persists even in an economic downturn. Procter & Gamble’s pricing power has allowed it to withstand higher input costs, and as those additional expenses come down, it should ease some of the pressure on margins. We weren’t bothered by Constellation Brands’ temporary pullback in beer trends. The company has proven it has the potential to grow beer over the long term and we expect demand to continue even in an economic downturn. CEO Bill Newlands will be speaking at a consumer conference next week, when we’ll get an update on how its business is performing. We still own Estee Lauder for China’s reopening game and believe that as Beijing eases its zero-Covid policy, the stock could work its way back to its pre-2022 lockdown levels. Jim Cramer previously said “The opening up of China is a really big deal for people going out. Don’t ignore it. Buy Estee Lauder.” (Jim Cramer’s charitable trust is long EL, PG and STZ. See here for a complete list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive trade alerts before Jim trades. Jim waits 45 minutes to send a trade alert before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our terms and conditions and privacy policy, along with our disclaimer. 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Laundry detergent Tide, owned by Procter & Gamble Co., is seen on a store shelf on October 20, 2020 in Miami, Florida.
Joe Rydle | Getty Images
Procter & Gamble (PG), Estee Lauder (EL) and Nakshatra Brand (STZ) could offset any economic downturn in the short term while offering long-term growth opportunities, according to Citi in a new research note. The bullish call on these consumer-tied companies aligns with our view and comes after many investors have piled into beaten-down tech names instead of favoring defensive stocks in 2023.