3 Consumer Staples Stocks Built For Inflation And Higher Interest Rates

With New Zealand inflation running at 1.5% for the June quarter and 4.1% year over year, many investors are rethinking how their portfolios might cope if the RBNZ lifts interest rates sooner or more sharply. Defensive consumer staples can look relatively appealing when borrowing costs rise and household budgets tighten, because they focus on everyday essentials. This article focuses on three stocks from a Defensive Consumer Staples Stocks screener that appear positively exposed to these inflation and interest rate catalysts, and explains how each might fit, or not fit, with your own risk tolerance and income goals.

Overview: Church & Dwight is a US consumer staples company behind everyday brands like ARM & HAMMER baking soda and laundry products, OXICLEAN cleaners, WATERPIK oral care and TROJAN condoms, selling household, personal care and specialty products across supermarkets, pharmacies, discount stores and online channels.

Operations: Church & Dwight generates most of its revenue from Consumer Domestic at about US$4.8b, with additional contributions from Consumer International at about US$1.1b and its Specialty Products Division at about US$0.3b.

Market Cap: US$23.2b

Church & Dwight gives you exposure to a broad basket of essential household and personal care brands that tend to stay in shopping baskets even when inflation bites, which is exactly what investors often look for when interest rates are rising. The company combines this defensive profile with health and wellness brands like THERABREATH, HERO and Touchland, a meaningful e-commerce channel and active share buybacks. At the same time, a premium P/E, high debt levels and pressure in weaker areas such as vitamins mean the stock involves risks. A key consideration for investors is whether Church & Dwight’s brand strength and pricing power justify its valuation in a higher inflation, higher rate environment.

Church & Dwight’s mix of everyday essentials and health focused brands could make the valuation debate more interesting than it looks at first glance, especially once you factor in the 3 key rewards and 1 important warning sign

Overview: Ridley is an Australian animal nutrition company that produces and supplies stockfeed, aqua feed, animal proteins, oils and specialty ingredients for livestock producers and pet food manufacturers across several regions, including retail channels.

Operations: Ridley generates most of its revenue from Bulk Stockfeeds at about A$914.7m and Packaged /Ingredients at about A$410.0m, with a segment adjustment of about A$380.3m and inter segment sales of about A$34.8m.

Market Cap: A$1.0b

Ridley operates in a higher inflation, higher rate setting where its feed and nutrition products ultimately sit behind basic food supply, which tends to be more resilient when households and farmers tighten budgets. Recent earnings momentum, improving margins and an apparently low valuation on Simply Wall St’s fair value estimate are drawing attention. However, the story is more nuanced given high debt, an unstable dividend record and exposure to volatile agribusiness and fertilizer markets. Management is also balancing buybacks and dividends with the need to keep investing for growth. For investors who can accept these trade offs, the mix of essential demand, operational changes and funding risks may make Ridley a stock that warrants closer consideration.

Ridley’s earnings story and apparently low valuation look like they might be masking something investors have not fully priced in, so it is worth checking the DCF valuation analysis for Ridley to see what the market could be missing

Overview: KP Tissue is a Canadian tissue company that, through its interest in Kruger Products, makes and sells bathroom tissue, facial tissue, paper towels and napkins under brands such as Cashmere, Purex, Scotties, SpongeTowels, Bonterra and White Cloud, as well as private labels, across grocery, mass merchandise, club, drug and convenience stores in Canada and the United States, and to commercial customers through distributors.

Market Cap: CA$128.7m

KP Tissue sits squarely in the kind of everyday essentials that consumers keep buying even when inflation is running hot, and its brands already play in categories where price increases have been pushed through before. The stock combines high quality earnings, rapid revenue growth forecasts and a dividend yield of 5.62%, which can appeal if higher interest rates pressure more cyclical sectors. At the same time, heavy use of external borrowing and recent insider selling highlight funding and governance risks that investors should keep in mind. What many readers may be missing is how KP Tissue’s pricing actions, cost controls and earnings growth record fit together with its apparent undervaluation to create a very specific inflation hedge profile within consumer staples.

KP Tissue’s mix of essential brands, apparent undervaluation and funding questions suggests investors may be missing a key twist in its story. As a result, it is worth reading the analysis report for KP Tissue

The three stocks covered here are just a starting point. The full Defensive Consumer Staples Stocks screener surfaced 32 more companies that could have equally compelling stories behind their revenue mix, balance sheets and dividend profiles, all accessible through the Defensive Consumer Staples Stocks screener. Use Simply Wall St to identify, filter and analyze the specific catalysts and narratives that matter to you so you can focus on the highest conviction ideas within defensive consumer staples.

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Seeking Fresh Alternatives Beyond Consumer Staples?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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