2 Consumer Defensive Brands Maintain Value Amid Uncertainty

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Erin Lash: Although the consumer defensive space has held up amidst the market carnage better than most, we still think there are significant opportunities for investors relative to the recent past. More specifically, the sector has declined at a mid-teens clip through the end of March, versus the high teens to low 20%s fall we've seen across the broader market space. And while the sector now trades at a mid-teens discount to our assessment of intrinsic value, we think this is incredibly attractive relative to the high single digits the sector has traded at over the last several quarters.

For investors looking for opportunities, we think alcoholic beverages and tobacco are particularly attractive, with both industries trading around a 30% discount to our fair value estimates. While the challenges within tobacco are well understood, we think alcoholic beverages as a space has been punished, as restaurants and bars around the world have shuttered due to COVID-19 concerns.

In the upcoming quarterly calls, we expect management teams will take time to articulate the extent to which robust gains in retail sales are holding up, and the extent to which their supply chains and distribution apparatuses are able to absorb these increases in demand. However, our expectation is that the gains we've seen of late are likely to abate as consumers ultimately de-stock their pantries over time.

For investors looking for specific ideas in the industry, we would suggest wide-moat Constellation Brands STZ, which trades at a 45% discount to our assessment of intrinsic value, as well as narrow-moat Hostess TWNK, which trades about 35% below our fair value estimates.