With markets wrestling with an 82% chance of a September Federal Reserve rate hike, $100 Brent crude, and U.S. gasoline at $4 per gallon, investors are being forced to think harder about where to find relative resilience. Consumer staples stocks do not escape higher inflation or borrowing costs, but their focus on everyday essentials can put them in a different position when budgets tighten. This article looks at how the latest macro shocks connect to large-cap staples and highlights three stocks from our Defensive Consumer Staples Stocks screener that appear positively exposed to the current news backdrop.

a2 Milk (NZSE:ATM)

Overview: The a2 Milk Company Limited sells branded dairy and nutritional products that use only the A2-type protein, with a focus on infant formula and specialty milks under the a2 Milk and a2 Platinum brands across Australia, New Zealand, China, wider Asia, and the United States.

Operations: a2 Milk generates most of its revenue from China and Other Asia at NZ$1.43b, with additional contributions from Australia and New Zealand at NZ$328.3m and the United States at NZ$157.6m.

Market Cap: NZ$6.1b

a2 Milk sits at the intersection of essential nutrition and premium branding. This can be appealing when consumers keep buying staples even as rates rise and fuel costs bite. The company is heavily geared to China and other Asian markets, where infant formula and nutritional products are central to its story. This also exposes it to regulatory approvals, competition and product recall risk, as seen with the recent FDA related issue in the U.S. At the same time, investors are weighing a special dividend, upgraded revenue guidance and forecasts for solid earnings growth against a relatively rich P/E and some pressure on margins. This makes the fuller risk reward picture worth a closer look.

a2 Milk’s combination of premium pricing, potential for special dividends and China exposure is only half the story. The real question is whether the current valuation properly reflects the 3 key rewards and 1 important warning sign

Elders (ASX:ELD)

Overview: Elders is an Australian agribusiness that supplies farmers with essentials such as seeds, fertilizers, animal health products and rural merchandise, while also providing livestock, wool and grain agency services, rural and residential real estate, financial products and an online livestock auction platform.

Operations: Elders generates A$3.63b in revenue, predominantly from its Australian operations across agricultural products, services and related activities.

Market Cap: A$1.19b

Investors looking for consumer staples exposure linked to real world food supply chains may find Elders worth a closer look. The company is tightly tied to Australian agriculture, with A$1.77b in half year revenue and the Delta Agribusiness acquisition broadening its reach across inputs, advice and livestock. On one hand, there is a fully franked dividend yield around 5.4%, along with potential benefits from Delta synergies and Systems Modernisation. On the other, there is a high debt load with net debt of A$621.6m, a recent one off loss, thinner margins and earnings that have been under pressure. How those trade offs stack up against its current valuation, especially as higher rates and inflation refocus attention on food security, is where the investment debate really sits.

Elders’ fully franked yield, Delta Agribusiness integration and Systems Modernisation project could be masking a much bigger story about balance sheet pressure and execution risk, so it is worth reading the Elders financial health report

PepsiCo (PEP)

Overview: PepsiCo is a global food and beverage company that sells a wide range of snacks and drinks, from chips and cereals to sodas, sports drinks and ready to drink tea and coffee, through supermarkets, convenience stores, foodservice channels and e-commerce worldwide.

Operations: PepsiCo generates most of its revenue from PepsiCo Beverages North America at US$29.2b and PepsiCo Foods North America at US$27.5b, with additional contributions from Europe, Middle East and Africa at US$18.9b, Latin America Foods at US$11.2b, International Beverages Franchise at US$5.2b and Asia Pacific Foods at US$4.9b.

Market Cap: US$185.1b

Investors sometimes consider PepsiCo when they want a blend of income and resilience, and the current backdrop of higher rates, US$100 oil and pressure on growth expectations brings that trade off into sharp focus. The company offers a history of dividends, a current yield around 4.39% and earnings that analysts expect to grow, even as revenue growth is set to be slower than the broader US market. At the same time, high leverage, softer North America volumes and health related headwinds on core snacks and sodas sit on the other side of the scale. The key question is how that mix of defensive cash flows, debt risk and a push into functional drinks compares once you look beyond the headline yield and valuation.

PepsiCo’s rich dividend history and slow revenue line are only part of the picture; the real tension is how its cash flows and balance sheet stack up once you review the analysis report for PepsiCo

The three stocks covered here are just a starting point, as the full Defensive Consumer Staples Stocks screener surfaces 23 more large cap consumer staples companies with equally compelling stories around essential goods, dividends and resilience. Use Simply Wall St to identify, analyze and filter for the specific catalysts and narratives that matter to you so you can focus on the highest conviction ideas across this group.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.