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# As markets gyrate over second wave fears, here are 2 consumer staple stocks to ride for the long run, from Barclays

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As markets gyrate over second wave fears, here are 2 consumer staple stocks to ride for the long run, from Barclays

Critical information for the U.S. trading day

Many innings to come.


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What did Monday’s stock meltdown tell us? Investors haven’t come to grips with a second/third COVID-19 wave, and pre-election stimulus hopes are all but gone. Tuesday may show us how much more Band-Aid-ripping there is to do for markets.

Maybe one antidote to the scary here and now is an optimistic peek into the future. That brings us to call of the day from Barclays, which does a deep dive on global consumer staple stocks, which sell and produce everyday essentials. Sifting through more than 70 stocks, Barclays offers up two to hold through what may be a prolonged recession and out the other side.

First up is analyst Lauren Lieberman with her pick, Coca-Cola
KO,
-1.42%.
“Before COVID, Coke’s organic revenue growth had been pacing in the 5% to 6% range for two years, evidence we’d say that the newfound goal of being a total beverage play was beginning to play out.”

She had pegged the beverage giant as one that had great momentum heading into the crisis, and while 2020 has been tough, “recent organization and brand portfolio changes should unlock sustainable profit growth in the long term.” Coke shares are down 10% year to date though — it delivered an earnings beat last week and has been moving away from costly bottling operations.

On the European side, her colleague William Ackerman likes Swiss food giant Nestlé
NESN,
-0.26%

NSRGY,
-0.53%
for four reasons: exposure to “attractive long-term categories” like pet food, baby food, etc., and geographic diversity, an upbeat growth profile, and strong leadership. Nestlé shares are down 20% year-to-date and the company reported a sales beat recently.

Lieberman says it has been interesting to see how companies in this sector have been pushing forward with premium products to capture changing consumer behaviors. For example, Procter & Gamble’s
PG,
-0.75%
new Dawn liquid soap in a powerspray, “priced at a 200% premium,” or Church & Dwight’s
CHD,

posh cat litter.

But as government support tapers off, the pair expects consumer companies will focus on efficiencies, affordability, and investment in entry level brands. The analysts think e-commerce has been a “game-changer,” and companies with “strong ESG [environmental, social and corporate governance] credentials” will likely outperform.

The markets

Stock futures
YM00,
+0.40%

YM00,
+0.40%
are gathering strength, while European equities
SXXP,
-0.10%
struggle.

The buzz

Shares of tractor-maker Caterpillar
CAT,
-3.19%
are down as results hit. Elsewhere, earnings have hit shares of drugmaker Eli Lilly
LLY,
-0.47%
results, Pfizer
PFE,
-0.68%
trimmed its outlook and missed forecasts, Merck’s
MRK,
-1.24%
results came in better than expected. Shares of motorbike maker Harley-Davidson
HOG,
-3.55%
are up on results. Earnings from technology giant Microsoft
MSFT,
-2.84%
 are due after the close.

Advanced Micro Devices
AMD,
+0.32%,
also reporting later, is buying rival chip maker Xilinx
XLNX,
-1.94%
in an all-stock deal valued at $35 billion. The latter’s shares are climbing, but AMD’s are down.

UPS
UPS,
-2.26%
is hiring 50,000 seasonal workers to cope with holiday deliveries.

Away from Wall Street, investors cheered results from banking giant HSBC
HSBC,
-0.71%
and energy group BP
BP,
-1.55%.

A new U.K. study shows that antibodies triggered by a COVID-19 infection don’t last. Italian police used tear gas to disperse protesters over new social restrictions, with curfews also hitting Spain.

Data on tap include durable goods orders, the Case-Shiller national home-price index, and a consumer confidence index.

Join Barron’s Investing in Tech on Thursday at 1 p.m. for an inside view of 5G from Jeff McElfresh, AT&T Communications Chief Executive, plus an outlook for initial public offerings and special-purpose acquisition companies from Kathleen Smith, chairman of Renaissance Capital. Register here.

The chart

Patrick Reid, co-founder of Adamis Principle, which provides foreign exchange education and macro global insights, flags a “worrying” rise in 10-year U.S. Treasury yields
TMUBMUSD10Y,
0.800%,
which are nearing 0.8%.


Adamis Principle/Tullett Prebon

“Not only that, but the spread or difference between 30
US00,
+0.01%
and 5-year yields
FV00,
+0.01%
is increasingly wider. This shows a positive future, but also increased borrowing costs. Mortgages and loans are particularly correlated with this,” Reid told MarketWatch.

He said they are most worried about real rates, which will become “much less attractive” if consumer price inflation (CPI) continues to trend higher.


Adamis Principles/Tullett Prebon

That could pressure risk assets such as equities, especially if Federal Reserve Chairman Jerome Powell becomes more neutral, which would be perceived as hawkish, he said.

When CPI rises, it means “less money in your pocket as things become more expensive. If you are getting a higher yield from bonds it’s great, but the real amount is hurting you because of net effect. Less bang for bucks and your money buys less stuff,” he said.

This causes investors to tighten their belts, reduce spending and reduce taking risks, i.e. buying stocks, he said.

Random reads

“Gilligan’s Island” theme song allegedly becomes a weapon in a dispute between bond billionaire Bill Gross and his neighbors.

That’s one giant leap…

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