Growing your wealth is always about playing defense.
And what better way to play defense than to own some of the best stocks selling all your daily essential products?
Even during the COVID-19 pandemic, these companies’ products are what people have been stocking up again and again.
What’s even better is that these businesses are much larger than most of our Singapore consumer companies, making them more resilient to crises.
Here are three US consumer stocks you need to know about right now.
Johnson & Johnson
Johnson & Johnson (NYSE: JNJ), or JNJ, is a US$403 billion healthcare giant and made more than US$80 billion in sales last year.
You may be familiar with some of its products like Johnson’s Baby Powder, Acuvue contact lenses and Clean & Clear facial foam, but JNJ does more than just sell consumer products.
For the third quarter of 2020, about 54% of JNJ sales come from pharmaceuticals, which includes the sale of top drugs such as Remicade, Sterala, Tremfya, and cancer drugs like Darzelex and Imbruvica.
Another 30% of JNJ’s sales come from selling medical devices, including orthopaedics and surgical devices.
If you look closely at the company, JNJ is a very strong marketing and distribution company. In fact, it spends around US$21 billion on marketing and selling expenses on a five-year average. That’s roughly 28% of its total sales over the same period.
That’s how JNJ can achieve such a wide distribution for its products in stores all over the world.
So far, this strategy has worked well for them. JNJ generates very high operating profit margins of 26% on average and returns on equity of around 20%.
What is little known to people is this: JNJ was founded in 1887, and today it has more than 132,000 employees with operations all over the world.
What’s more interesting is it has also raised dividends every single year since 1972, making it one of the top “Dividend Aristocrats”.
A dividend aristocrat is a company that has raised its dividends for 25 consecutive years or more.
For such a large company, this is a remarkable achievement.
Procter & Gamble
Procter & Gamble (NYSE: PG) sells a wide range of consumer products. Whether you know it or not, you have probably bought some of its products before.
You see, the company sells to a global audience and has operations in 80 countries.
Some of its top brands include Oral-B, Gillette, Pantene, Gain, Tide and Febreze.
While these aren’t the most exciting products, they’re usually needed frequently. This helps P&G to generate steady sales growth.
So far, even during the pandemic, its full-year financial results for the fiscal year ended 30 June 2020 saw total sales growing by 4.9% year on year to US$71 billion.
Its earnings also rebounded quickly from a one-off impairment charge last year, jumping from US$3.9 billion last year to US$13 billion for its fiscal year ended 30 June 2020.
Over the last 10 years, P&G’s net earnings averaged around US$10 billion, reflecting the company’s sustainable profitability from its 65 brands.
And that allowed it to generate strong free cash flow, which increased from US$10 billion in 2011 to US$14 billion in 2020.
Meanwhile, its return on equity (ROE) is around 20% on average over the last five years.
What many people may not know is that P&G had started to trim about 100 brands from its portfolio since 2014, to become a more “nimble” consumer products business.
So far, it has been working well for them.
Kimberly-Clark Corporation
If you’d ever bought Scott brand’s paper towels or used Kleenex’s tissue papers, you’ve bought a product from Kimberly-Clark (NYSE: KMB). Its business involves selling personal care items and tissue paper.
Kimberly-Clark is a US$46 billion consumer-products company.
It’s a leading manufacturer of personal care and tissue products, selling merchandise from women’s sanitary products to tissue paper and baby diapers.
For its last fiscal year 2019, just over half of its sales come from the US, and the rest is split across Asia, Latin America and Europe.
The strength of KMB’s portfolio comes from its main brands, including Huggies, Scott, Kleenex, Cottonelle and Kotex. These brands also allow KMB to be a strong cash flow generator.
While competition is intense in the consumer products space, KMB has maintained a healthy operating margin of around 14% over the past 10 years.
Given that the company is one of the leading hygiene and baby products firms, KMB has generated close to US$2 billion of free cash flow on average year after year. With its massive free cash flow, it also has rewarded shareholders well.
In fact, since 2010, KMB increased dividends from US$2.53 per share to US$4.28 as of 2020.
Get Smart: Consumer staples are set to continue growing
While they aren’t your widely-popular technology stocks, they’ve been stalwarts of the US economy and have shown tremendous strength even during the COVID-19 pandemic.
For a long-term investor looking to grow your wealth safely, perhaps you should be looking at these stocks for your watchlist.
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Disclaimer: Willie Keng owns shares in Johnson & Johnson.
