The Morningstar US Consumer Defensive Index fell 0.9% in Q4 2025, trailing the US Equity Index’s 2.4% gain. 48% of companies in the sector are trading at 4- or 5-star levels, presenting investment opportunities. Alcoholic beverage and consumer packaged goods industries are attractive, trading at discounts of 28% and 16%, respectively.

Input cost inflation has impacted profitability in the consumer defensive sector due to raw material, transportation, and labor costs. While some commodity pressures have eased, concerns remain about unfavorable weather, supply disruptions, and tariffs affecting proteins and cocoa.

Consumer product firms are expected to combat declining profitability by pursuing cost savings, raising prices, adjusting packaging, and reducing discretionary spending. However, investments in research, development, and marketing are likely to continue to maintain relationships with retailers and consumers.

Consumer financial health concerns persist, driving demand for value offerings and convenience in food consumption. Packaged food firms are urged to cater to the growing food-away-from-home channel to boost sales and trial new products before traditional retail distribution.

Campbell’s is a top pick with a wide moat, trading at a 50% discount to its $60 fair value estimate. The company aims to engage with consumers more effectively by investing in brands to support revenue growth. Kraft Heinz, a narrow-moat company, trades 50% below its $51 fair value estimate and offers a 6% dividend yield. Mondelez International, with a wide moat, trades at a 25% discount to its $73 fair value estimate, presenting a strong investment opportunity.

Read more at Morningstar: US Consumer Defensives: Consumer-Valued Innovation Is Crucial to Withstanding Unrelenting Inflation