Oppenheimer sees more favorable setup for consumer staples stocks

Oppenheimer analysts see a more favorable setup for consumer staples stocks as the market anticipates Federal Reserve rate cuts.

“Fed easing has historically been a positive for consumer staples stocks and the group has generally outperformed during periods of falling 10-year Treasury yields,” wrote Oppenheimer.

Their analysis shows that during past periods of Fed rate cuts, consumer staples stocks outperformed the S&P 500 by an average of 32 percentage points.

The firm says they also typically performed well in the six months following the initial rate cut, indicating potential for outperformance if rate reductions materialize.

Analysts highlight that consumer staples stocks generally outperformed in previous periods of falling Treasury yields, with an average increase of 17.4% compared to the S&P 500’s 5.4% gain over six periods.

However, during the recent period from October 2023 to September 2024, Oppenheimer explains that consumer staples underperformed, rising 17.1% compared to a 29.0% increase in the S&P 500.

The firm also notes that the relative P/E for consumer staples stocks is slightly above recent trough levels, trading at 1.02x compared to the June 2024 trough of 0.90x but below historical averages.

On an absolute basis, the group trades at 20.7x earnings, which is above historical averages but below recent peaks.

The firm’s top picks in the sector remain Church & Dwight (NYSE:), Freshpet (NASDAQ:), and Prestige Brands (PBH), while e.l.f. Beauty, Inc. (NYSE:), Hormel Foods (NYSE:), and Utz Brands (UTZ) are also on their radar.

Oppenheimer concludes: “As we look at our consumer staples playbook, the recent change in the interest rate backdrop coupled with valuations near trough levels create a more favorable setup for outperformance from here.”