Consumer Shares

Investing in branded products


What are consumer stocks?


Consumer stocks are the shares of companies that produce goods for daily needs. Joint stock companies are companies that produce food, care products, furniture, travel, glasses or toys. Every day the producers sell millions of products to consumers from all over the world. Many everyday items are regularly bought by consumers, with many buyers placing value on purchasing high-quality branded products. This is why the shares of producers such as Nestlé, Procter & Gamble, Danone, Coca-Cola, McDonald's, Mattel, Unilever and L'Oréal are among the best-known international representatives of this type of security. In Germany, the securities of optician Fielmann, based in Hamburg, Berlin online retailer Zalando and Munich-based Zooplus AG are among the best-known consumer stocks.

The products of companies that issue consumer shares are available in any supermarket. In order to find out which manufacturer is behind which product, it is worth taking a look at the small print on the packaging. This tells buyers that some no-name products come from well-known brand manufacturers. Renowned companies produce special product lines for discounters and grocery chains, so that consumers can be offered a low-cost alternative in addition to branded goods. The sales figures of the inexpensive products additionally increase the turnover of the brand manufacturers and ensure increasing prices of the consumer shares and regular dividend payments.



Why consumer stocks are profitable


Only a few consumers are self-sufficient, growing their own fruit and vegetables or keeping animals intended for consumption. At the same time, Germany is the industrial nation with the lowest food prices worldwide. Therefore, food markets and discounters have had stable sales figures for many years, which have a positive effect on share prices and dividend yields of producers. Moreover, if a company is successful in turning its goods into branded products, consumers are willing to pay a higher price for the purchase. Even newly introduced offers sell well from the outset if buyers know the manufacturer and trust him for the quality and benefits of his products.

Since the goods on offer cover the daily needs of consumers, regular consumption is safe and suppliers can report stable sales figures. Particularly in countries with a good economic situation, buyers are willing to spend higher sums on luxury items in order to eat well, wear high-quality clothing, buy expensive furniture and other furnishings or book a holiday in the upper price range. The purchases of the consumers provide for rising stock prices and for steady dividend payments, so that some consumer shares belong at the same time to the High Yield shares.


Advantages and disadvantages of consumer shares


The advantages for holders of consumer shares are that consumers must constantly buy goods for their daily needs. Therefore the prices of consumer shares fluctuate less than the share prices of companies operating in other sectors. The time of year, political decisions or other external factors also have a low influence on the price development of consumer shares. In particular, producers who concentrate exclusively on food can demonstrate a stable share price and regular dividend payments. In the case of conglomerates, on the other hand, a decline in one business segment can lead to a decline in the price of consumer shares, even if other fields of activity continue to be successful.

An investment in consumer stocks is a long-term investment and not suitable for quick profit taking. Nevertheless the investors must observe the market exactly and with large price fluctuations over a sale of the consumer shares think. That applies particularly to the shares of enterprises, which produce and drive goods out, which go beyond the classical offer of supermarkets. To these companies rank for example the American retailer Wal-Mart or the French retail company Carrefour. These two companies register in economically difficult times partly large turnover losses, because the buyers do not buy many products, which do not originate from the food range any longer.


Consumer stocks as an economic indicator


The behavior of consumer stock prices enables investors to recognize the general sentiment among the population in various economic situations. In an economic crisis, consumers hold back on spending on food, cosmetics, travel, clothing and furnishings. This is also reflected in the market prices of consumer stocks, which are either sinking or stagnating. Dividend distributions by stock corporations may also be lower or suspended. Attentive investors use these times to buy consumer stocks, because when the economic situation recovers, spending on daily needs rises again and provides for a recovery of share prices of consumer stocks.

On the other hand, the price development of consumer stocks also indicates the healthy economic situation of a country. Gesellschaft für Konsumforschung (GfK) publishes the Consumption Climate Index every month with the expectations of 2,000 consumers as to how consumer behavior in Germany will develop over the next twelve months. If the assessment is positive, both private consumer spending and government spending will rise. This development is also reflected in consumer share prices, which rise in economically stable and strong times. In order to achieve good returns, investors should therefore add some consumer stocks to their portfolio and keep them in their portfolio for a long time.