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Stocks  | January 21, 2021

Every year in January and early February, the NFL playoffs run their course, with an eventual winner taking home the Vince Lombardi Trophy and an NFL Championship. And when Super Bowl 2021 comes around, just like every year companies of all kinds will be buying ads for the big game. Many of these companies are also excellent consumer stocks to buy for the long haul.

What are the best consumer stocks to buy for the NFL playoffs? That depends on how you want to pick these stocks.

You could do it the old fashioned way and pick a handful of stocks from consumer-focused exchange-traded funds such as the Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP) or the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY).

I did just that in late October last year, picking five from each. Most of these picks have done just fine since then. Long-term, all 10 ought to be home runs.

Today though, I’m going to choose from companies whose Super Bowl ads wowed viewers in years past.

Here are 7 consumer stocks to buy for the NFL playoffs:

  • Amazon (NASDAQ:AMZN)
  • Procter & Gamble (NYSE:PG)
  • PepsiCo (NASDAQ:PEP)
  • Microsoft (NASDAQ:MSFT)
  • Kraft Heinz (NASDAQ:KHC)
  • Colgate-Palmolive (NYSE:CL)
  • Toyota (NYSE:TM)

To keep our picks current, I’ll try to pick seven consumer stocks whose ads got raves in either Super Bowl 54 (San Francisco lost to Kansas City) or Super Bowl 53 (New England beat the Los Angeles Rams).

Consumer Stocks To Buy: Amazon (AMZN)

Even casual Super Bowl viewers know that the best ads in any given year are often from the same companies who had the best ads from the year before and so on.

Amazon is one of those companies. In 2020, it was Ellen DeGeneres and Portia de Rossi. In 2019, it was Alexa, Amazon’s personal assistant.

The e-commerce behemoth jumped out to big gains in 2020. By mid-July, it was trading above $3,200, up 70% on the year. Who knew that, in a year where Covid-19 would result in Amazon coming first to top the dunnhumby Retailer Preference Index (RPI), AMZN stock would move sideways for the entire second half of 2020?

But that’s exactly what happened. This despite Amazon generating $24.7 billion in free cash flow over the trailing 12 months from $348 billion in revenue.

Amazon is facing harsh criticism for how it treats its frontline warehouse workers, many of whom are contracting the novel coronavirus.

I was one of many who put aside personal disagreements about its treatment of employees early in 2020, suggesting that its innovation will continue to push AMZN stock higher. I continue to believe that to be the case in 2021.

Procter & Gamble (PG)

Now, it could be that Olay made both the Super Bowl 54 and 53 lists because the source I used was Vogue, which probably has a bit of a bias toward the skincare brand. But for this article, let’s assume the fashion mag is on the up and up.

Procter & Gamble’s managed a return to growth in recent years, the big reason its stock has generated a 5-year annualized total return of 17.7% through January 12.

In the trailing 12 months, P&G had free cash flow of $15.1 billion, 114% of its TTM net income. Any time you can convert more than 100% of your net income to FCF, you’re doing a lot right.

The only downer for Procter & Gamble heading into 2021 is that  Federal Trade Commission (FTC) recently stopped the company from acquiring Billie, a women’s beauty products company. On January 5, the companies issued a joint statement calling off the combination.

While Billie wasn’t going to cost P&G a ton of money if it was successful, losing the attraction of acquiring a company loved by younger consumers hurts for PG investors. Billie had a growth runway  an experienced player could really exploit.

However, the FTC was worried that taking out another direct-to-consumer brand would result in higher prices for consumers, especially women.

Yielding 2.3%, P&G has once again become a dividend-paying dream stock.

PepsiCo (PEP)

If there’s a stock tailor-made for watching the Super Bowl, PepsiCo would have to be it.

On the drink side, you’ve got Pepsi, Mountain Dew, Lipton iced tea, Bubly sparkling water, Gatorade; the list goes on. For munchies, you’ve got Doritos (often among the best ads), Lays potato chips, Miss Vickie’s potato chips, Cheetos cheezies, Smartfood popcorn and Cracker Jack caramel-coated popcorn and peanuts.

And if you’re feeling really healthy, at halftime, you could always make yourself a bowl of Quaker Oats.

Jokes aside, the combination of food and beverage is what’s always kept PepsiCo in the race with Coca-Cola (NYSE:KO) for the world’s top snack-related company. Its performance over the past five years — an annualized total return of 10.4% — has been far superior to Coke’s, and that edge really showed up during 2020 when its snacks business had a growth spurt due to work-at-home orders.

Now, we shouldn’t get carried away about PepsiCo. Relative to the markets as a whole, PEP has underperformed over the past five years — but Coke has really wet the bed.

PepsiCo might not give you sales and profit growth like Apple (NASDAQ:AAPL), but it does return lots of excess cash to shareholders. In fiscal 2020, it will pay out $5.5 billion in dividends and $2 billion in the form of share repurchases.

Yielding 2.9%, it’s equally attractive for dividend investors.

Microsoft (MSFT)

Apparently, Microsoft had one of the better ads from last year’s Super Bowl. In it, San Francisco 49ers assistant coach Katie Sowers talks about her lifelong love of football. Ads that tug at the heartstrings often get top billing.

Unfortunately, I’m getting older and can barely remember that Pat Mahomes and the Chiefs won the big game. But I digress.

It’s hard to believe but I haven’t written anything about Satya Nadella or the maker of Office 365 since September of last year. At the time, I called for patience from the owners of MSFT stock. That’s because tech stockholders, including Microsoft, were taking profits.

However, as long as Satya Nadella is in charge of the company, MSFT shareholders can rest easy knowing his long-term gameplan to grow is on time and on target.

“With MSFT’s aggressive movement into cloud computing and a year’s worth of earnings beats behind it, analysts are gleeful in their enthusiasm. An astounding 28 of 32 call MSFT stock a buy, with two more calling it overweight,” stated InvestorPlace’s Lou Carlozo on January 11.

As I said in September, Microsoft remains a great company that isn’t getting any love from investors and really hasn’t since last July, following a big run from its March lows.

In 2021, that’s likely to change.

Kraft Heinz (KHC)

While I’m loath to put Kraft Heinz on any best stocks list, given the fact that its Mr. Peanut Planters ad from 2019 made Vogue’s list of top commercials, I’m compelled to include it. But as most investors know, Kraft Heinz is one of, if not the worst investment ever made by Warren Buffett.

In February 2020, the last time I wrote about the consumer packaged foods giant, I discussed its upcoming fourth-quarter results:

“This time last year, Kraft Heinz (NASDAQ:KHC) reported fourth-quarter results that will live in infamy. It’s not often that a Warren Buffett investment delivers an $11 a share impairment charge in a single quarter, but that’s what happened on Feb. 21, 2019. As a result, Kraft Heinz stock dropped 27% in a single day of trading.”

“It has been a rocky road for Kraft Heinz shareholders ever since,” I wrote on Feb. 7, 2020.

A few days after I wrote those fateful words, Kraft Heinz reported earnings that were better than analyst expectations but provided no guidance for 2020. Of course, we know Covid-19 came shortly thereafter, and all bets were off.

However, in its Q3 2020 report, Kraft Heinz revealed that its free cash flow had increased by 108% to $2.93 billion in the first nine months of the fiscal year from $1.41 billion a year earlier.

For the trailing 12 months ended Sep. 26, 2020, its free cash flow was $4.3 billion, the highest it’s been in some years, giving it a current FCF yield of 6.6% based on an enterprise value of $65 billion.

If its free cash flow keeps improving and the share price doesn’t move anywhere, it’s in value land.

Kraft Heinz showed plenty from its Q3 2020 results. That bodes well for the future. If you own Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), that’s got to be music to your ears.

Colgate-Palmolive (CL)

Colgate-Palmolive isn’t one of my favorite consumer stocks, but I must admit it had one of the better ads from Super Bowl 53.

To me, Colgate-Palmolive has always been the underachieving little brother to Procter & Gamble. Certainly, its performance over the past five years hasn’t been nearly as good — CL has an annualized total return of 7.4% compared to 14.6% for PG — and that makes me skittish about future returns.

That said, consider some of the positives regarding Colgate-Palmolive.

First, it does have some good brands. I use at least two: Speed Stick and Palmolive. And, if you’re an income investor, the current yield of 2.1% isn’t half bad if you’re merely looking to park some money for a while. Lastly, it has a very high return on invested capital of 34.3%, considerably higher than P&Gs, which is 17.9%.

Do I think you’re going to be able to retire on your investment in CL? Not a chance. But you will be able to sleep at night, and you can’t say that about many of the stocks that went public this past year.

Toyota (TM)

Recently, my InvestorPlace colleague Josh Enomoto made the argument that Tesla (NASDAQ:TSLA) had breached bubble territory, using Toyota for a fundamental comparison.

“At nearly $669 billion, the EV maker absolutely dominates automotive heavyweights like Toyota and General Motors (NYSE:GM), with $251.5 billion and $59.6 billion, respectively,” Josh wrote on January 4. He went on to say:

“But the thing is, Toyota and GM are globally recognized brands with long histories and massive infrastructures. Further, the traditional internal combustion engine provides advantages in terms of everyday conveniences that you’re not going to get with an electric vehicle. (Remember, the world’s average infrastructure is nowhere near as fleshed out as it is here.)”

I don’t disagree with his analysis. For a while, I’ve said that Tesla isn’t an investment you want to make if you’re all about the fundamentals.

The reality is that Toyota builds vehicles consumers want to own. Post-Covid will return it to generating tremendous amounts of free cash flow, which will help finance its future electrification moves.

Trading at a reasonable valuation compared to its historical metrics — price-to-sales of 0.86 vs. 0.69 for 5-year average — if you hold it for the 3-5 years, I think you will do better than you expect.

But you’ve got to be patient. The Teslas of the world are getting all the attention at the moment. That’s not going to change until further down the electrification trail.

A revolutionary initiative is helping average Americans find quick and lasting stock market success.

275% in one week on XLF - an index fund for the financial sector. Even 583%, in 7 days on XHB… an ETF of homebuilding companies in the S&P 500. 

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