Although data shows that the consumer is remaining resilient, consumer staples stocks have continued to underperform since the beginning of 2023. Portfolio Wealth Advisors President & CIO Lee Munson joins Yahoo Finance Live to discuss.

“We have to... separate out what these selloffs are all about,” Munson says. “There's a group of stocks out there that are selling off because of these GLP-1s… and they're concerned that people are not going to eat treats anymore.”

Then there is “this other situation,” Munson points to Dollar General (DG). “They're having problems with their profit margins because people are not buying high-margin potato chips… you’re seeing on the lower end, there's definitely this erosion of these staples that people are buying.” With this and the GLP-1s, “now we've got possibly an oversold market in some of those areas.”

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

SEANA SMITH: Give us a better sense of the consumer staple trade. Obviously a massive underperformer since the start of the year, among the worst performers that we're seeing in the market here. Yet, we have data point after data point here that's telling us that the consumer remains resilient. So how does that position some of these companies that have been under pressure since the start of the year?

LEE MUNSON: Well, I think we have to separate out what the sell-offs are all about. There's a group of stocks out there that are selling off because of these GLP-1s. You know, it's the Norvo. It's the Eli Lilly trade. And they're concerned that people are not going to eat treats anymore. But then you have-- and I think that's overblown. Then you have this other situation.

Listen to what Dollar General is talking about. Dollar General, it's a poverty trade. And they're having problems with their profit margins because people are not buying high margin potato chips. They're just buying toothpaste. So you're seeing on the lower end, there's definitely this erosion of these staples that people are buying. And we've been hearing about that all year. So then you pour some fuel on it with the weight loss drugs, and now we've got possibly an oversold market in some of those areas.

BRAD SMITH: OK, and so where are the biggest opportunities? What's your top idea in the markets right now?

LEE MUNSON: Well, outside of Dollar General, which I know that's not-- they sell the staples-- take a look at something like Hershey's, right? My son owns this. The kids love to buy Hershey's in October because they think that Halloween candy is going to boost sales. I don't have the heart to tell them that's not the way it works.

But Hershey, you know, they've got the salty snacks. This thing is down double digits from its high this year. There used to be a time, remember, a few years ago, when a stock had a 2.5% dividend, that was actually higher than a 10-year Treasury, and people loved it. And I think that over the next year or two, that's going to come back in vogue.

The second thing that I like is rather controversial. It's cigarettes. It's Philip Morris. It's paying out a lot of its cash flow. It's paying about 9% right now. I think people don't understand that story. There's a lot of younger investors that think it's about some pivot to cannabis or some-- I think they're high. That's not what it's about. You have a population, while declining, still smoke these things.

And what Philip Morris does, they say, listen. You know, it's not like we're reinvesting and trying to get more and more people smoking, even though they would love that, but they're paying out all that cash flow. And I think if you're looking for a staple where you have an understanding of how that market is going down, an understanding of how it's slowly eroding, you can get your calculator out, do some calculus, and go make some money.

So I think you have to separate those out. I'm really concerned about a Procter and Gamble going into next year, though. If we get an actual recession, even if it takes another year, people are going to look to trade down. And I think that's where you're going to have some issues. I'd rather look at something like a Dollar General to take advantage of those staples that people still want to buy.