Companies and Brands

Deutsche Bank Out With Top Consumer 'Risk Off' Picks for 2019

Lee Jackson

Published: November 29, 2018 7:25 am

Last Updated: January 11, 2020 2:21 pm

Needless to say, the past few days have been a bright spot for investors after a brutal October and November, but one thing seems clear across Wall Street: 2019 may be a difficult year and investors should prepare for some tough sledding. The combination of trade concerns, rising interest rates and slowing growth have turned investors toward safer sectors, but there can be risk in some of the safest stocks.

In a new research report, Deutsche Bank makes the case that some of the safest areas in the market have become expensive and could prove to be a trap for worried investors looking for safe harbors.

The Deutsche Bank report noted this:

At present, given the market’s defensive bias, enthusiasm over better-than-expected top-line momentum coming out of the third quarter, and newfound optimism over future gross margin stability/expansion, Consumer Staples (especially Home and personal care/ Beverages) has rapidly become one of the most expensive sectors in the market.

With that cautionary note in mind, the firm does have some top picks in the sector for cautious investors. Here we feature seven stocks from three categories that look like good selections right now.

Top Core Consumer Packaged Goods

Coca-Cola

This top Warren Buffet holding not only offers safety but an incredibly strong worldwide brand with 40% overseas sales. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.

Led by Coca-Cola, one of the world’s most valuable and recognizable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.

Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. With coolers getting packed for picnics, parades and vacations you can bet that they will be stuffed with products from this iconic American company. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.

Coca-Cola investors are paid an outstanding 3.14% dividend. The Deutsche Bank price target for the stock was last seen at $53, while the Wall Street consensus target price is $51.48. The stock closed Wednesday’s trading at $49.71 apiece.

International Flavors & Fragrances

This is the other top core holding at Deutsche Bank. International Flavors & Fragrances Inc. (NYSE: IFF) creates, manufactures and supplies flavors and fragrances (including cosmetic active ingredients) used to impart or improve flavor or fragrance in a range of consumer products. The company operates in two segments.

Its Flavors segment offers flavor compounds that are sold to the food and beverage industries for use in consumer products, such as prepared foods, beverages, dairy, food and sweet products.
IFF’s Fragrances segment offers fragrance compounds and ingredients. Its cosmetic active ingredients consist of active and functional ingredients, botanicals and delivery systems to support its customers’ cosmetic and personal care product lines. Its products are sold to manufacturers of perfumes and cosmetics, hair and other personal care products, soaps and detergents, meat and other processed foods, beverages, snacks and savory foods, sweet and baked goods, and pharmaceutical and oral care products, among others.

IFF investors are paid a 2.08% dividend. The Deutsche Bank analysts have a $161 price target, while the consensus target is $148.69. The stock closed trading at $140.58 on Wednesday.

Top Growth Picks

Monster Beverage

The current rage for energy drinks won’t be ending any time soon and this company is a leader. With more than $3 billion in sales, Monster Beverage Corp. (NASDAQ: MNST) is an alternate beverage company focusing primarily on the energy drink segment. Approximately 75% of sales are in the United States, and the company has two primary operating segments focused on finished goods and concentrates.

It’s important to remember though that Coca-Cola owns 16.7% of Monster Beverage, and the purchase back in 2015 made the Coke the company’s primary distributor in the United States and gave Monster access to the soft drinks giant’s distribution system in international markets. There always remains a possibility Coke could acquire the entire company as well.

The $64 Deutsche Bank price target compares with the $62.71 consensus price target. The stock closed on Wednesday at $59.10 a share.

Constellation Brands

If there is any company with products that stay in style, it is this one, which only has 7% foreign sales. Constellation Brands Inc. (NYSE: STZ) is a leading global producer and marketer of beverage alcohol. Its wide-ranging portfolio spans wine, spirits and imported beer. The company is one the world’s largest wine companies overall and is the largest global premium wine company. Key brands include Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Black Velvet and SVEDKA vodka. It also owns 100% of the rights to brew, market and sell Modelo’s Mexican beers in the United States.

The company posted solid quarterly results, and analysts across Wall Street raised their earnings estimates for fiscal 2019. Constellation Brands has also made a gigantic $3.8 billion investment in cannabis company Canopy Growth to increase its holdings in the company. The record investment reflects a world in which pot has become ubiquitous as its counterculture stigma fades.

Investors receive a 1.47% dividend. The Deutsche Bank price target is $245. The consensus target is $249.27, and shares closed on Wednesday at $201.32.

Estee Lauder

As long as there is demand for fragrances and makeup, this leader in the sector will thrive. Estee Lauder Companies Inc. (NYSE: EL) is one of the world’s leading manufacturers and marketers of prestige skincare, makeup, fragrance and hair care products.
Estee Lauder products are sold in over 150 countries and territories under brand names including: Estée Lauder, Aramis, Clinique, Prescriptives, Lab Series, Origins, Tommy Hilfiger, M•A•C, Kiton, La Mer, Bobbi Brown, Donna Karan New York, DKNY, Aveda, Jo Malone London, Bumble and bumble, Michael Kors, Darphin, Tom Ford, Smashbox, Ermenegildo Zegna, AERIN, Tory Burch, RODIN olio lusso, Le Labo, Editions de Parfums Frédéric Malle, GLAMGLOW, By Kilian, BECCA and Too Faced.

Shareholders receive a 1.23% dividend. Deutsche Bank has set its price target at $156. The consensus estimate is $154.92, and shores ended Wednesday at $140.20.

Top Value Picks

Altria

Shares of this maker of tobacco products and wine have been hit hard and offer value investors a great entry point. Altria Group Inc. (NYSE: MO) is a top mega-cap consumer discretionary stock to buy, and the company’s Marlboro brand remains one of the most recognizable in the world. Many Wall Street analysts concede that the stock has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate.

Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return plan. The analysts expect continued support of the strong dividend, in addition to continued share repurchase activity. The board also raised the dividend by 8.2% in 2017.

To diversify away from cigarettes and cigars, Altria has expanded its portfolio into new categories like wine and e-cigarettes, and the company also has a 9.6% stake in Anheuser-Busch InBev.

Altria investors receive a hefty 5.82% dividend. Note that the $62 Deutsche Bank price target is less than the consensus estimate of $66.15 The stock closed most recently at $54.95.

Molson Coors

While the iconic American beer company did merge with a Canadian beer giant, it is still based in Denver. Molson Coors Brewing Co. (NYSE: TAP) is one of the world’s largest brewers, with core brands Coors Light, Carling, Molson Canadian and Staropramen. Molson and Coors merged in February 2005 and added StarBev in 2012, and it serves markets including the United States, Canada, Eastern Europe and the United Kingdom and Ireland, with exposure to other markets through its Molson Coors International division. It acquired the remainder (58%) of the U.S. joint venture (MillerCoors) in mid-October 2016.

The Coors light brand remains a huge favorite with Generation X and baby boomers, who were all around when the light beer revolution started. The company is now working on opportunities to market a cannabis-infused product.

Shareholders receive a 2.53% dividend. The Deutsche Bank price target is $72. The consensus target is $72.88, and the shares closed at $65.91.

Seven top stocks that make sense for nervous investors that would like to stay in the game but don’t want to get mauled by a huge sell-off. While all stocks tend to go down if there is massive selling, these should fare much better, and they are solid picks for 2019.