6 Consumer Staples and Retail Stocks Picks for 2023

Despite ongoing concerns over an economic slowdown and declining consumer spending, numerous advisors still see long-term value in select retail and consumer-oriented names. In the MoneyShow Top Picks 2023 report, six newsletter advisors looked to these out-of-favor sectors for their top investment ideas for the year. John Persinos, Investing Daily One of the best defensive growth havens is consumer staples, and a particularly attractive stock in this sector is the diversified giant Unilever PLC . With a market cap of $128 billion, Unilever offers healthy growth and income, and it's a bargain to boot. European-based stocks present future investment opportunities, especially consumer staples companies with rosters of international brands. With headquarters in London, Unilever wields a portfolio of ubiquitous household labels that are sold in more than 170 countries throughout Africa, Asia, Latin America, the Middle East, North America, and Western Europe. The company's stable of everyday items encompasses an enormous range of categories, including dressings and spreads, ice cream and beverages, personal care, and home care. The company straddles both the consumer staples and consumer discretionary sectors, with an emphasis on staples. Unilever's brands include blockbuster sellers such as Hellmann's mayonnaise, Lipton tea, Knorr soups, Lux and Dove soaps, Ben & Jerry's, Klondike, Slim Fast, Popsicle, Ragú, and Sure and Degree antiperspirants. The company continues to push its iconic products into emerging markets, where increasingly affluent middle-class consumers associate Unilever products with the good life in the West. Coveted brands and cost efficiencies, combined with steadfast consumer spending, put Unilever in a strong position for 2023. Unilever's 12-month forward price-to-earnings ratio (FPER) stands at 17.5, which is a bargain compared to the FPER of 21.2 for the consumer staples sector, and the FPER of 19.3 for the S&P 500. Based on the analyst consensus, UL's earnings per share over the next three years is projected to grow 26.25%. Now sporting a hefty dividend yield of 3.50%, Unilever is appealing to income and growth investors alike. The company has weathered the pandemic and it's positioned to thrive when current global headwinds dissipate. Tim Melvin, The 20% Letter My aggressive Top Pick for 2023 is Hanesbrands ; the company has faced some headwinds from the coronavirus and inflation, but at its core, this is a fantastic company with leading market shares in several countries around the world. Hanesbrands owns some of the best-known underwear and bra brands worldwide, including household names like Hanes, Maidenform, Polo Ralph Lauren, Playtex, Wonderbra, and Maidenform. Unlike most of its competitors, Hanesbrands manufactures most of its products in factories it owns outright or has under long-term exclusive contracts. Of the two billion garments it sells annually, 70% are manufactured in-house. Hanes also owns Champion, a leading sports clothing and sweatshirt company. Sweatshirts and hoodies are becoming more than just athletic apparel, and athleisure is expected to be a growth market once we get through the current global economic conditions. The stock is trading at just 6.5 times earnings and $0.35 on the dollar of sales. That is too cheap for a portfolio of brands that dominate their markets. The company is earning its dividend and should continue to do so. While there has been talk on the internet about cutting or eliminating the dividend to preserve cash, I do not see any need to do so. In addition to paying a dividend, Hanes has been generating more than enough cash over the past year to run the business, pay down debt, and buy back stock. If management were to cut the payout, I'd view the resulting sell-off as an excellent point to double down. Hanesbrands is worth several multiples of its current stock price. If the balance sheet were not already leveraged, this company would have been scooped up by a private equity firm a long time ago. The company dominates its markets with products we all use and replace all the time. As a result, the company has been generous about returning cash to its shareholders over the years. Patient, aggressive investors should see a return of multiples of their original investment, not just percentages. Josh Arnold, Sure Retirement Newsletter V.F. Corporation is an apparel, footwear, and accessories company that was founded in 1899. V.F. has built a highly desirable portfolio of consumer-facing brands. Its brands span the full spectrum of price points in a variety of categories and include Vans, Supreme, JanSport, Dickies, Timberland, and more. The company is a Dividend King, having raised its payout for 50 consecutive years, putting it in elite company on that measure. We see 10% earnings-per-share growth annually looking forward, which is one reason why V.F. is my top dividend stock pick for 2023. V.F. shares have had a very rough 2022; its shares have declined in part due to the fear of a recession, which generally leads to slower consumer spending. However, V.F. has stood the test of time and weathered many recessions in past decades. It is my belief that V.F. will come out of this recession as strong as ever, as it generally has in the past. The stock is yielding 7% today, which is not only extremely high by any measure, but especially considering the company is a Dividend King. There have been very few times when an investor could own a stock with such a favorable combination of yield and dividend longevity. V.F. has generally yielded between 2% and 3% for the past decade, so its yield today is extraordinary. One caveat is that the payout ratio for this year is likely to be around 100%, as the company's earnings have fallen on higher inventory levels, slower consumer spending, and promotional activity. However, these characteristics have always proven transitory in past recessions, and I see this year as the trough for earnings. In addition, management is highly likely to defend the dividend through means other than earnings - if that becomes necessary in order - to keep the dividend increase streak alive. Given these factors, I do not believe a dividend cut is on the horizon, despite the high current payout ratio. V.F. Corp's valuation is also extremely attractive, as shares trade for just over 13 times this year's earnings estimate. Overall, we believe V.F. Corp could offer total returns of around 22% annually to shareholders, and given its unique combination of current yield, low valuation, and dividend longevity, it is my top dividend stock pick for 2023. Rosario Sal Salamone, MoneyLetter Smaller or up-and-coming growth companies often get overlooked. These smaller companies are riskier because they typically are not yet earning a net profit and/or it is much more difficult to forecast their cash flow for the next 3-5 years. But that increased risk should not automatically disqualify small caps as a choice as we enter 2023. Yes, growth stocks have taken their lumps in 2022. But small-cap growth stocks tend to lead market recoveries and once we get the much-desired Fed pivot it could be off to the races for some of these funds. Here is one idea for you to participate: Needham Small Cap Growth Retail focuses on investing in stocks of smaller growth companies that the fund believes are trading at a discount to their underlying value. In addition, these companies should have a catalyst in place that will eliminate this discount through an acceleration of revenues and earnings over the next year or more. Needham describes a company as small if it has a market capitalization of less than $5 billion (the fund will continue to hold it if the company crosses over this threshold). From here, they want companies they believe are emerging as market leaders and are backed by strong and incentivized management teams. What does an emerging market leader look like? According to Needham, these companies have disruptive products and services; a coherent, well-thought-out strategy; and strong growth potential. The fund will hold higher levels of cash during certain periods while searching for these appropriate investments. Worth mentioning, and a feature of this fund that differentiates it from many of its peers, is that Needham will utilize shorting techniques to dampen volatility. This leads to a portfolio, as you would expect, with the technology sector carrying a sizable weight. As of 9/30/22, the leading industry weights within the portfolio are: Information Technology (68%), Cash (20%), Health Care (8%), Materials (2%), and Industrials (2%). Despite a tough year in 2022, Needham Small Cap Growth Retail has proven to be a strong performer over a longer review period. Gordon Pape, Internet Wealth Builder Bet on one thing: 2023 will be the year of the bargain hunters. With inflation still at uncomfortably high levels, shoppers will seek to stretch their dollars as far as possible. That's good news for discount stores, including TJX Companies . I'll bet that someone in your family has shopped in at least one of its 4,700 stores, such as HomeSense, Marshalls, and Winners. The U.S. and Canada are obviously the biggest markets, but the company also operates in the U.K., Ireland, Germany, Poland, Austria, the Netherlands, and Australia. All are stable countries, although the international diversity means TJX can be subject to currency fluctuations. Financially, the company is very strong. Sales last year were $48.5 billion, which was up $7 billion from the last pre-Covid year, 2019. It also delivered the highest sales and net income in the company's history. TJX generated $3.1 billion in operating cash flow and ended the year with $6.2 billion worth of cash on its balance sheet, so it's in a very comfortable position regardless of what the economy does. The company recently reported third-quarter results and although sales were only slightly up, the pretax profit margin rose to 11.2%. Both profit margin and adjusted earnings per share were above plan. The company returned $843 million to shareholders in the quarter through share repurchases and dividends. I don't see this as a double-your-money stock, but it has the potential to generate a modest capital gain in the 15% range and pays a decent dividend. Taylor Conrad, Argus Research AutoZone -- a Top Pick for 2023 -- is a leading retailer and distributor of automotive replacement parts and accessories. It has 6,943 stores and offers national brand and private-label products. The auto parts sector generally benefits from an older fleet of American cars, which need more repairs. More than 80% of the U.S. auto fleet is more than four years old, with an average age of 11.9 years, according to data from the Auto Care Factbook. The Commercial segment -- which provides commercial credit and delivers parts to repair shops, dealers, service stations, and public sector accounts -- represents a significant growth opportunity for AZO, which estimates that it has about 4% of this market. Management is taking steps to increase commercial sales, including adding new 'mega-hub' locations that offer a greater assortment of parts. We see opportunities for further growth as the average age of vehicles increases and the company gains market share in the commercial segment. The company's earnings have rebounded from their pandemic lows, and have now topped Street expectations for the past ten quarters. AZO recently reported fiscal 1Q23 results that topped consensus expectations. On the fundamentals, the shares trade at 17-times our FY24 EPS forecast, in line with the peer average. From a technical standpoint, apart from the pandemic selloff, the shares have been in a long-term bullish pattern of higher highs and higher lows dating back to April 2018. We believe this well-managed company is positioned for further growth and are maintaining our buy rating. Our revised target price is $2775.

6 Consumer Staples and Retail Stocks Picks for 2023

Investment experts look to these out-of-favor sectors for their top investment ideas for the year.

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