What are consumer staples and why are they considered defensive investments?

Consumer staples are essential products people need regardless of economic conditions – things like food, household goods, personal care items, and basic clothing. They're considered defensive investments because demand remains relatively stable even during economic downturns. While luxury or discretionary spending might decrease when times are tough, people still need to purchase these everyday essentials, which can make these stocks less volatile during market turbulence.

What is a "high-volume, low-margin" business model?

A high-volume, low-margin business model means companies make a small profit on each individual sale but compensate by selling enormous quantities of products. Think of Walmart or Costco – they may only make pennies on each dollar of sales, but they sell billions of dollars worth of merchandise. This approach allows them to offer competitive prices while still generating substantial overall profits through sheer scale and efficient operations.

What are off-price retailers?

Off-price retailers like TJ Maxx, Ross, and Burlington buy excess inventory, canceled orders, and closeout merchandise from brand-name manufacturers and department stores, then sell these items at significant discounts (typically 20-60% below regular retail prices). They offer a "treasure hunt" shopping experience where inventory constantly changes. These stores thrive during economic uncertainty when consumers become more price-conscious while still wanting quality merchandise.

How does inflation affect value retailers?

Inflation can actually benefit value retailers in two key ways. First, as prices rise across the economy, more shoppers "trade down" from higher-priced stores to value-focused alternatives to stretch their budgets. Second, these companies' efficient operations and massive purchasing power often allow them to negotiate better with suppliers and absorb some cost increases without fully passing them on to customers. This can enhance their competitive position and potentially increase market share during inflationary periods.

What is a dividend yield?

Dividend yield is the annual dividend payment divided by the current stock price, expressed as a percentage. For example, if a stock trades at $100 and pays $3 in annual dividends, its dividend yield is 3%. It shows how much income you're receiving relative to your investment. Many established retailers in this collection pay dividends, providing investors with regular income in addition to any potential stock price appreciation.

15 handpicked stocks

Everyday Essentials

These companies power our daily lives by offering must-have products at wallet-friendly prices. Carefully selected by our analysts, this collection features retail giants with business models built to thrive even when consumers are watching every penny.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17