Oppenheimer sees a more favorable setup for consumer staples stocks by Investing.com

Oppenheimer analysts see a more favorable setup for consumer staples as the market anticipates rate cuts from the Federal Reserve.

“Historically, Fed easing has been positive for consumer staples, and the group has generally weathered periods of declining 10-year Treasury yields,” Oppenheimer wrote.

Their analysis shows that during previous periods of Fed interest rate cuts, consumer staples stocks have outperformed the S&P 500 by an average of 32 percentage points.

The firm says they have typically performed well in the six months following the initial rate cut, indicating the potential for outperformance should rate cuts materialize.

Analysts point out that consumer staples stocks have generally outperformed previous periods of falling Treasury yields, with an average gain of 17.4% compared with the S&P 500’s 5.4% gain over six periods.

However, in the recent period from October 2023 to September 2024, Oppenheimer explains that consumer staples underperformed, rising 17.1%, compared to a 29.0% rise in the S&P 500.

The firm also notes that the relative P/E for the consumer staples stock is slightly above recent lows, trading at 1.02x compared to the June 2024 low of 0.90x, but below historical averages.

On an absolute basis, the group trades at 20.7x earnings, which is above historical averages but below recent peaks.

The firm’s best picks in the sector remain Church & Dwight (NYSE: ), Freshpet (NASDAQ: ) and Prestige Brands (PBH), while elf Beauty, Inc. (NYSE: ), Hormel Foods (NYSE: ) and Utz Brands ( UTZ ) are also on the radar.

Oppenheimer concludes, “As we look at our consumer book, the recent change in the interest rate environment, coupled with valuations near record lows, creates a more favorable setup for outperformance from here.”