Five Under-the-Radar Consumer Staples with Pricing Power: A Value Investor's Assessment

The consumer staples sector's 2025 performance was a study in defensive underperformance. It widely underperformed the broad-based S&P 500® index year to date, a result that reflects a market environment dominated by AI-driven growth stocks and shifting consumer trends. This lag created a potential entry point, but one that demands discipline. The opportunity isn't in the sector as a whole, but in individual companies that can navigate the current headwinds with a clear path to protecting and growing earnings.

The core challenge for investors is to avoid the valuation problem that often accompanies mega-cap names. While giants like Procter & Gamble and Coca-Cola possess undeniable strength, they also carry premium valuations that leave little margin of safety. The beaten-down performance of the sector in 2025, with the Consumer Staples Select Sector SPDR Fund almost flat, opens a door for mid-cap companies. These names offer a more compelling blend of defensive stability, dividend income, and upside potential without the same premium pricing.

The key differentiator for any company in this setup is its ability to maintain pricing power. As shoppers become more value-conscious, the ability to defend margins becomes critical. The most attractive opportunities are found in businesses with pricing visibility, often through a diversified revenue mix. Consider a company like Hormel, which benefits from both branded products and private label manufacturing. This dual exposure allows it to defend margins even if volume shifts toward value products, capturing wallet share across different income tiers. Similarly, Conagra's focus on higher-margin categories through brand rationalization is designed to strengthen its negotiating power and implement targeted price increases.

The bottom line for the value investor is to look past the sector's broad underperformance and focus on the durable competitive advantages within it. The setup in 2026-a more balanced operating backdrop and potentially improving consumer spending-could reward patient capital that identifies companies with a wide moat and a clear strategy to compound earnings through cycles. The goal is to find the mid-cap names where the market's recent skepticism has created a margin of safety, not to chase the expensive, well-known leaders.

Analyzing the Moats: Brand, Contracts, and Execution for Five Companies

The defensive opportunity in consumer staples hinges on identifying companies with durable pricing power and financial health. For the value investor, the focus is on the quality of the moat-not just brand recognition, but the business model resilience that allows a company to defend margins and compound capital through cycles. Let's examine the five under-the-radar names through this lens.

Hormel Foods presents a classic case of a company navigating severe headwinds with a resilient model. The company's adjusted operating margin of 8.4% and $845 million in cash flow from operations for fiscal 2025 demonstrate significant underlying profitability, even after a difficult year. Its dual exposure to branded products and private label manufacturing is the core of its defensive moat. This mix allows Hormel to capture value across different consumer tiers, defending its wallet share and margin structure even as shoppers trade down. The recent 25% stock decline reflects the impact of discrete events like tariffs and a recall, but the company's financials show the operating engine remains intact.

Conagra Brands offers a compelling yield and a board that signals confidence. The company's dividend yield of 8.09% is a major draw for income-focused investors. More importantly, the board's authorization of a 3% increase to the quarterly dividend is a tangible signal of financial strength and management's belief in the sustainability of cash flows. This move, part of a consistent annual increase since the company went public, supports the thesis that Conagra's focus on premium and branded products provides a pricing advantage. The high yield itself can be seen as a margin of safety, offering a buffer while the company's strategic product mix works to grow earnings.

Lamb Weston's story is one of operational execution driving dramatic profitability. The company reported a staggering 652% year-over-year increase in income from operations for its second quarter of fiscal 2026. This wasn't just a one-time gain; it followed a period of robust volume growth of 8% and share gains. The key here is the combination of volume expansion with disciplined cost management, evidenced by the company's ongoing $100 million cost savings program. This execution creates a virtuous cycle: volume growth supports fixed cost absorption, which boosts margins, which funds further investment and shareholder returns. It's a model of compounding that doesn't rely on constant price hikes.

J.M. Smucker's moat is built on its portfolio of premium and branded products. In a value-conscious environment, the company's focus on these categories provides a natural pricing buffer. While the evidence doesn't detail specific margins, the strategic emphasis on higher-margin brands is a defensive positioning. It allows Smucker to target consumers less sensitive to price, protecting its earnings stream from the most intense discounting. This brand strength, combined with a commitment to innovation, forms a durable competitive advantage that can weather consumer shifts.

Finally, Flowers Foods exemplifies pricing power in a fragmented market. As a regional bakery leader, it operates in a space where national competitors often lack the local reach and customer intimacy. This gives Flowers a degree of pricing control, particularly on its branded products. The company's ability to maintain pricing power is a function of its local market dominance and the essential nature of its products. In a sector where value-conscious shoppers are a key trend, Flowers' model-focused on reliable, everyday staples-provides a stable foundation for earnings.

The bottom line is that true moats are built on more than just brand names. They are forged in the details of a company's financial health, its ability to execute on volume and cost, and its strategic positioning within a market. These five companies show different facets of that resilience, offering value investors a range of paths to defensive compounding.

Valuation and Margin of Safety: Weighing Price Against Intrinsic Value

The defensive stability of consumer staples is being tested, and the traditional "free pass" of pricing power is no longer guaranteed. As shoppers become more value-conscious, the ability to simply raise prices is insufficient. The real test is a company's capacity to defend margins even as volume shifts toward value products. This dynamic makes the valuation discipline of a value investor more critical than ever. The sector's 2025 underperformance, with the Consumer Staples Select Sector SPDR Fund nearly flat, has created a pool of beaten-down names. Yet the opportunity lies not in the sector's average, but in individual businesses where the market's skepticism has created a margin of safety.

Management's guidance on a profitable growth path is a key input for assessing that margin. Hormel Foods provides a clear example. Despite a difficult fiscal 2025, the company reported strong top-line growth and a robust $845 million in cash flow from operations. More importantly, leadership has stated it is entering fiscal 2026 with a clear strategic compass and a commitment to reshape its earnings trajectory. This forward-looking statement, backed by actions like targeted pricing and cost reductions, is what a value investor looks for. It signals a plan to convert the company's underlying strength into improved profitability, which is the essence of intrinsic value creation.

However, significant risks remain that could pressure this path. The persistent impact of GLP-1 weight-loss drugs on consumption is a structural headwind for the sector, as noted by a portfolio manager who sees it as a key concern weighing down volume growth. For a company like Hormel, which relies on protein-centric offerings, this could dampen demand for certain categories. At the same time, the company must navigate fluctuating input costs, which challenged profitability in 2025. The margin of safety here depends on Hormel's dual exposure to branded and private label products, which management believes allows it to defend margins even if volume shifts toward value products. This model provides a buffer, but its effectiveness will be tested in a value-conscious environment.

The bottom line is that for these mid-cap names, the margin of safety is found in the gap between their current depressed prices and the cash-generating ability they are actively working to protect and grow. The 25% stock decline for Hormel in 2025 reflects discrete events and a tough year, but the company's financials and stated outlook suggest the operating engine is intact. The value investor's task is to determine if the current price adequately compensates for the known risks-structural consumer shifts and cost volatility-while offering a reasonable expectation for the company to execute its plan. When a sector underperforms, the best opportunities often show up in companies that can protect margins even as shoppers trade down.

Catalysts and Risks: What to Watch for the Thesis

For the value investor, the thesis on these under-the-radar consumer staples hinges on a few forward-looking factors. The path to realizing intrinsic value will be paved by operational execution and a shift in the broader investment environment. Monitoring these catalysts and risks provides a clear framework for assessing each company's progress.

The most immediate test of pricing power is in the quarterly numbers. Investors should watch for a reversal in the trend of declining price/mix, which was a key factor in Lamb Weston's recent quarter. The company reported an 8 percent increase in volume but a corresponding decline in price/mix as it supported customers through competitive pricing. The critical signal will be whether volume growth can be sustained while management successfully navigates contract repricing. If companies can demonstrate they are regaining pricing leverage without sacrificing share, it validates their moat and strengthens the margin protection story.

A more favorable macro backdrop could provide a powerful tailwind for the entire sector. As noted by a portfolio manager, 2026 looks poised for a more balanced operating environment. The passage of the One Big Beautiful Bill Act is expected to deliver a significant income boost to middle-income consumers, potentially translating into stronger discretionary spending. At the same time, several sector-specific headwinds appear to be easing. The rapid adoption of GLP-1 drugs may decelerate, and the alcohol-consumption reset is largely played out. This combination of fiscal stimulus and stabilizing pressures could boost product demand and, by extension, stock valuations across the defensive sector.

Finally, management's actions on capital allocation are a tangible signal of confidence in future earnings stability. The board's authorization of a 3 percent increase to the quarterly dividend at Lamb Weston is a clear example. This move, part of a consistent annual increase since the company went public, is a commitment to returning cash to shareholders. For a value investor, such a dividend increase is a vote of confidence that management believes the company's cash-generating ability is robust enough to support both growth and shareholder returns. It is a leading indicator that the company's strategic plan is on track.

The bottom line is that the thesis requires patience and active monitoring. The catalysts-improving volume trends, a supportive policy environment, and disciplined capital returns-are within the companies' control or are likely to unfold in the coming year. The risks, like persistent consumer shifts, remain. By focusing on these specific indicators, an investor can separate the noise from the meaningful signals that will determine whether these mid-cap names deliver the defensive compounding the value investor seeks.