What It Is:
How It Works/Example:
Examples of consumer staples include food, drugs, beverages, tobacco, and basic household products. These are things that people are unlikely to reduce their demand for when times are tough because people see them as basic needs. People often go through consumer staples frequently; meaning they usually see a constant level of demand.
Why It Matters:
Since the frequent purchase of staples represents a relatively small portion of most consumers' annual income, demand tends to be fairly stable year-in and year-out. Thanks to this stability, sales and earnings growth in this sector tend to remain constant in good times and bad. After all, no one cuts back on purchases of food or dishwashing liquid, even during recessions. With this in mind, safe, defensive names in the consumer staples sector can provide investors with a great way to hedge their overall portfolio risk.