If I had to choose exactly one sector to invest in this year, it would be consumer goods. Here’s why. It’s typically divided into two parts – staples and discretionary. Consumer staples are necessary purchases that get made, irrespective of whether the economy is booming or sluggish. Discretionary goods, are ‘nice to have’ but not necessary, strictly speaking. Because it combines these two distinct segments, I think consumer goods are among the best investments for 2020. Staples or defensives hedge against the stock market crash and discretionary goods or cyclicals can drive investments forward as animal spirits return.
Key features of a good share to buy
It goes without saying that discretion is still required when buying consumer goods stocks. My focus this year has been on stocks with two features. One, they should have a past of strong financial performance. Without steady performance, it’s unlikely that a stock’s price can give investors returns overtime.
Two, their stock price should reflect their performance. There are enough examples of FTSE 100 stocks that have performed but their share prices remain stubbornly low. One reason for this may be that investors don’t think they have great prospects. Whatever the reason might be, if they don’t give returns to investors, the case for buying them is weak.
Best investments of 2020
One example of a consumer goods stock that meets both criteria is the Anglo-Dutch FTSE 100 biggie, Unilever. The owner of cleaning products like Cif and Domestos and personal care brands like Dove and Tresemme has performed quite well this year. Like all other stocks that carry a near guarantee of stability if not growth, its share price too is sitting at the highest levels in 2020 now. There was some uncertainty about its dual structure in the past. But it has now been decided that it will be a London-based company, which should bring even more stability.
Among consumer discretionary stocks, I have long liked JD Sports Fashion. If I had bought this FTSE 100 share at its bottom this year, it would have already yielded a three-times return. I didn’t, not until much later. Even then, it’s the best performing stock in my investing portfolio. The company’s rise has been meteoric in the past few years and its share price has followed. Long-term consumer trends and the expected recovery next year, both support JD’s future performance too.
An alternative to consider
But if you think it has run up too much, can I suggest the luxury stock Burberry? I think that with the Chinese recovery underway, the case for this classic British brand just became stronger. Unlike newer luxury brands cum retailers like Ted Baker, BRBY’s brand value is near unshakeable, making its comeback quite likely as consumers return to the stores. Its share price has improved over the past few months, and I reckon it can rise more in the coming months, which may well get it counted among the best investments for 2020 too.
Manika Premsingh owns shares of Burberry and JD Sports Fashion. The Motley Fool UK has recommended Burberry and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.