Procter & Gamble (PG), Estee Lauder (EL) and Constellation Brands (STZ) can weather any short-term economic slowdown while offering long-term growth opportunities, according to Citi in a new research note. The bullish call on these consumer-facing companies aligns with our view and comes as defensive stocks have fallen out of favor in 2023, with many investors instead piling into defeated technology names. What Citi Thinks Analysts at Citi chose our three Club holding companies from their top-rated picks – launching coverage in US beverages, home and personal care products. While these quality names have temporarily hurt in a tougher economic environment with still high inflation, analysts argued they offer “compelling long-term growth stories at reasonable valuations.” PG YTD mountain P & G (PG) YTD performance Like many multinationals, Procter & Gamble has been weighed down by a strong US dollar, making its products more expensive for international consumers. The company was also pressured by higher raw material, material and freight costs. But those inflationary trends appear to be abating. In addition, the company’s price increases do not seem to affect sales. In its fiscal outlook for the third quarter of 2023, P&G expects total resistance of $3.7 billion, or $1.50 per share, after tax — smaller than its previous outlook for a $3.9 billion headwind , or $1.57 per share. At the same time, the consumer products powerhouse, whose premium brands include Tide, Pampers and Gillette, has been able to increase the prices of its products with minimal back pressure – contributing to 5% organic sales growth in fiscal Q2 and estimates for 4% to 5% organic revenue growth in the current fiscal third quarter. With these factors in mind, Citi sees the company in a “better position to navigate a challenging macro environment.” In addition, analysts see an “attractive entry point” to pick up P&G shares, which are down more than 7.5% so far, following the company’s generally poor fiscal second-quarter results in late January. Citi has a $160 per share price target for the stock, which rose 2% on Friday to around $140. STZ YTD mountain Constellation Brands (STZ) YTD performance Citi also said it’s time to buy Constellation Brands, the company behind the Mexican beers Corona, Modelo and Pacifico. Shares are down about 2% so far in 2023 after a rough December after the beer brand experienced subdued demand due to bad weather in key markets like California. The company said at the time that near-term headwinds will improve to drive “medium-term beer sales growth.” Analysts at Citi have a $265 price target for the stock, which fell slightly below $227 on Friday. EL YTD mountain Estee Lauder (EL) YTD performance Citi also estimates “strong sales/margin recovery” from Estee Lauder as China economy reopens. China accounts for about a third of the company’s sales. Estee Lauder, a leading manufacturer of luxury skincare, makeup and fragrance products, struggled during the Covid pandemic as people around the world stayed at home and China’s lockdowns continued long after many major economies, such as the US , reopened. However, that has been changing recently since Beijing dropped its zero-Covid policy. So as the Chinese economy reopens, Estee Lauder’s business in the region is “positioned to accelerate from here,” said Citi, which has a $295 price target for the stock. Shares of the cosmetics giant rose more than 1% to nearly $253 on Friday. EL has posted gains of approximately 2% year-to-date. What the club thinks The bottom line is, we’re excited to see Citi’s bullish calls on Procter & Gamble, Constellation Brands, and Estee Lauder, for similar reasons that we hold every stock. These names are more resilient to a discretionary slowdown in spending as demand for their products persists even in an economic slowdown. Procter & Gamble’s pricing power has allowed it to weather the high input costs, and as that extra spend comes down, that’s going to put some pressure on margins. We weren’t disturbed by the temporary dip in beer trends from Constellation Brands. The company has demonstrated sustained beer growth and we expect that demand to continue even in an economic slowdown. CEO Bill Newlands will speak at a consumer conference next week when we get an update on how his company is performing. We still own Estee Lauder ahead of China’s reopening and believe that since Beijing eased its zero-Covid policy, the stock could work its way back to pre-2022 levels. Jim Cramer has previously said, “The opening of China is very important for people going out. Don’t ignore it. Buy Estee Lauder.” (Jim Cramer’s Charitable Trust is long EL, PG & STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charity’s portfolio. If Jim has talked about a stock on CNBC TV, he will wait 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIAL OBLIGATION OR DUTY EXISTS OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Tide, a laundry detergent owned by the Procter & Gamble company, is on a store shelf in Miami, Florida, on Oct. 20, 2020.
Joe Raedle | Getty Images
Proctor & Gamble (PG), Estee Lauder (EL) and Constellation Brands (STZ) can navigate any short-term economic slowdown while providing long-term growth opportunities, Citi said in a new research note. The bullish call on these consumer-facing companies aligns with our view and comes as defensive stocks have fallen out of favor in 2023, with many investors instead piling into defeated technology names.
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