The Case for Buying and Holding Undervalued Consumer Staples and Pharma Giants in 2025

In an era of market volatility and shifting economic priorities, long-term value investors are increasingly turning to sectors with proven resilience: consumer staples and pharmaceuticals. These industries, characterized by stable demand and consistent cash flows, offer compelling opportunities for investors seeking undervalued stocks with durable dividend histories. As of 2025, both sectors exhibit favorable fundamentals, though their alignment with Benjamin Graham's value investing principles varies. This analysis explores the rationale for holding these stocks, emphasizing undervaluation, dividend resilience, and long-term growth potential.

Consumer Staples: A Pillar of Stability Amid Mixed Valuation Signals

The U.S. Consumer Staples sector trades at a price-to-earnings (P/E) ratio of 20.8x as of November 2025, reflecting a moderate valuation relative to historical norms. Earnings are projected to grow at an annual rate of 9.8%, driven by essential demand for goods like food, beverages, and household products. For dividend-focused investors, the sector's "Dividend Kings"-companies with 50+ years of consecutive dividend increases-remain a cornerstone. Walmart, for instance, offers a 0.9% yield with a "very safe" Dividend Safety Score according to Simply Safe Dividends, underscoring its reliability.

However, not all consumer staples stocks meet Graham's stringent criteria for deep value investing. The Value Investor model from Validea highlights that companies like Monster Beverage Corp (MNST) and Seneca Foods Corp (SENEA) score 71% on Graham-based metrics but fail the P/E and P/B ratio thresholds. In contrast, Conagra Brands Inc (CAG) emerges as a stronger candidate, passing both P/E and P/B tests while maintaining a robust balance sheet. This divergence suggests that while the sector as a whole is attractively positioned, investors must carefully screen for true value opportunities.

Pharmaceutical Giants: Dividend Resilience Amid Innovation-Driven Growth

The pharmaceutical sector in 2025 demonstrates remarkable dividend resilience, with key players like AbbVie (ABBV), Merck & Co. (MRK), and Amgen (AMGN) sustaining payouts despite industry headwinds. AbbVie has delivered a forward dividend yield of 3.54% while leveraging its post-Humira portfolio (Skyrizi and Rinvoq) to drive a 32.59% year-to-date return. Merck's 3.88% yield is supported by its 16-year dividend streak and strategic acquisitions, such as Verona Pharma. Amgen's 2.92% yield, meanwhile, reflects its strong cash generation and recent FDA approvals for therapies in oncology and obesity.

From a Grahamian perspective, these stocks face mixed signals. Amgen's P/E ratio of 25.9 and P/B ratio of 21.63 exceed Graham's ideal thresholds of 9.0 and 1.20, respectively. Additionally, its debt-to-equity ratio of 5.67 and current ratio of 1.28 fall short of Graham's defensive investor criteria. Yet, the company's innovation pipeline and consistent earnings growth-up 12% year-over-year in Q3 2025-justify its inclusion in a long-term portfolio. Similarly, AbbVie is deemed "686.8% undervalued" by Graham's revised fair value method, despite its reliance on a shrinking patent portfolio. These examples illustrate that while Graham's metrics provide a useful framework, pharmaceuticals' high-growth, R&D-driven nature often necessitates a more flexible approach.

Strategic Considerations for Long-Term Investors

For investors prioritizing dividend resilience and value, the key lies in balancing Graham's principles with sector-specific dynamics. Consumer staples offer lower volatility and predictable cash flows, making them ideal for conservative investors. However, undervaluation requires rigorous screening, as seen with Conagra Brands' alignment with Graham's criteria. In contrast, pharmaceuticals demand a focus on innovation and R&D pipelines, even if traditional metrics like P/E and P/B ratios appear elevated.

The dividend histories of companies like Johnson & Johnson (JNJ), a Dividend King with 63 consecutive years of increases according to The Motley Fool, further reinforce the sector's appeal. JNJ's dual focus on innovation and income generation exemplifies how pharmaceuticals can serve as both a defensive and growth-oriented asset.

Conclusion

The case for holding undervalued consumer staples and pharmaceutical stocks in 2025 rests on their ability to deliver consistent dividends and navigate macroeconomic uncertainties. While Graham's criteria highlight the need for disciplined valuation analysis, the broader context of sector-specific strengths-such as essential demand in consumer staples and innovation in pharmaceuticals-provides a compelling rationale for long-term investment. By combining rigorous financial metrics with an understanding of industry dynamics, investors can position themselves to capitalize on these resilient sectors.