Procter & Gamble (PG), Estee Lauder (EL) and Constellation Brands (STZ) can navigate any economic slowdown in the short term while offering long-term growth opportunities, according to Citi in a new research note. The bullish call on these consumer-tied companies aligns with our view and comes as defensive stocks have fallen out of favor in 2023, with many investors instead piling into beaten-down tech names. What Citi thinks Analysts at Citi chose our three Club holdings among their top-rated picks — initiating coverage in U.S. beverages, household and personal care products. While these high-quality names have seen temporary pain in a tougher economic climate with still-elevated inflation, analysts argued they offer “compelling long-term growth stories at reasonable valuations.” PG YTD mountain P & G (PG) YTD performance Like many multinationals, Procter & Gamble, has been weighed down by a strong U.S. dollar, making its products more expensive to international consumers. The company has also been pressured by higher commodity, material and freight costs. But those inflationary trends appear to be easing. Additionally, the company’s product price hikes don’t seem to be impacting sales. In its fiscal 2023 third-quarter guidance , P & G expects, in aggregate, a $3.7 billion, or $1.50 per share, after-tax drag — smaller than its prior outlook for a headwind of $3.9 billion, or $1.57 per share. At the same time, the consumer products powerhouse, whose high-quality brands include Tide, Pampers and Gillette, has been able to raise prices on its products with minimal pushback — contributing to 5% organic sales growth in fiscal Q2 and estimates for 4% to 5% organic sales growth in the current fiscal third quarter. With these factors in mind, Citi sees the company in a “better position to navigate through a challenging macro environment.” Moreover, analysts see an “attractive entry point” to scoop up P & G shares, which have dropped more than 7.5% year to date, following the company’s overall poor fiscal second-quarter earnings in late January. Citi has a $160-per-share price target on the stock, which rose 2% on Friday to about $140. STZ YTD mountain Constellation Brands (STZ) YTD performance Citi also said it’s time to buy Constellation Brands, the company behind Mexican beers Corona, Modelo and Pacifico. Shares have fallen about 2% so far in 2023 following a rough December after its beer brand experienced tempered demand due to poor weather in key markets like California. The firm said, at the time, that short-term headwinds will improve to help drive “medium-term beer top-line growth.” Analysts at Citi have a $265 price target on the stock, which fell slightly lower Friday to just under $227. EL YTD mountain Estee Lauder (EL) YTD performance Citi also estimates “strong topline/margin recovery” from Estee Lauder as China’s economy continues to reopen. China accounts for roughly a third of the company’s revenue. Estee Lauder, a leading manufacturer of luxury skincare, makeup and fragrance products, struggled during the Covid pandemic, as people around the world stayed home, and lockdowns persisted in China long after many major economies, such as the U.S., began reopening. However, that’s been recently changing since Beijing ditched its zero-Covid policy. So, as the Chinese economy continues to reopen, Estee Lauder’s business in the region is “poised to accelerate from here,” said Citi, which has a price target of $295 on the stock. Shares of the cosmetics giant rose more than 1% on Friday to nearly $253. EL has seen a roughly 2% year-to-date gain. What the Club thinks The bottom line: we’re pleased to see Citi’s bullish calls on Procter & Gamble, Constellation Brands and Estee Lauder, for similar reasons that we hold each stock. These names are more resilient to a discretionary spending slowdown since demand for their products persists, even in an economic slowdown. Procter & Gamble’s pricing power has allowed it to weather high input costs, and as those extra expenses comes down, that will take some pressure off margins. We weren’t disturbed by the temporary pullback in beer trends from Constellation Brands. The company has proved that it has long-standing beer growth and we expect that demand to persist, even in an economic slowdown. CEO Bill Newlands will speak at a consumer conference next week, when we’ll get an update on how its business is performing. We still own Estee lauder for the China reopening play and believe since Beijing has eased its zero-Covid policy the stock can work its way back to its pre-2022 lockdown levels. Jim Cramer has previously said “the opening of China is a really big deal for people going out. Don’t ignore it. Buy Estee Lauder.” (Jim Cramer’s Charitable Trust is long EL, PG & STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Procter & Gamble (PG), Estee Lauder (EL) and Constellation Brands (STZ) can navigate any economic slowdown in the short term while offering long-term growth opportunities, according to Citi in a new research note. The bullish call on these consumer-tied companies aligns with our view and comes as defensive stocks have fallen out of favor in 2023, with many investors instead piling into beaten-down tech names.
