The Preview
The past week's news headlines have been truly wild. I could fill the newsletter each morning on just the latest macro events. However, that's not our primary focus. I want to provide you with balanced, unbiased stock ideas to help you build your watchlist. Yesterday, we gave a preview for Aerospace and Defense stocks. Today, we cover the Consumer Defensive sector.
Consumer Defensive stocks generally perform best in the "Slowdown," or "Recession" phases of the Business Cycle.
But it does not feel like we are in the "Slowdown" phase currently. Late Business Cycles usually take shape as central banks tighten monetary policy in an attempt to cool down an overheating economy. That isn't happening. The Fed is not tightening, they are likely holding or cutting in the near term.
Knowing this, it is still worthwhile to have some stocks on your watchlist or in your portfolio for the high-quality characteristics these stocks provide.
Stable Stocks
Consumer Defensive stocks are known for stable cash flows and dividends because people have to eat regardless of the economy. Despite the chaotic news cycles, the current economic indicators are still looking quite good. The leading banks are projecting continued economic expansion, with US GDP to grow at 2.5%. It would seem today, Consumer Defensive stocks are positioned to lag the broader market.
However, I'm a firm believer that to make money in the market, you need to be contrarian to the consensus. I typically like to anticipate the undervalued and underperforming sectors before the rotation begins. It doesn't mean I go all-in, but I start to look for high-quality names with high cash flow and low debt. This way, if I'm early, I still have positions working for me in current trends, and I start to build for the future shifts.
2026 Tailwinds
The Small and Mid-Cap segment of the Consumer Defensive sector in 2026 has a few themes we like.
- Valuations: Small-cap staples are trading at significant discounts to not only the broader market, but their large-cap peers.
- Domestic Focus: Many small-cap staples are purely domestic businesses. With the pro-growth fiscal agenda of the administration towards US-centric firms, it creates a distinct tailwind.
- M&A: Larger companies are always looking for growth. Small caps with high-growth brands themes like beverages, pet food, or clean snacking are prime targets.
Here are some companies we are putting on our watchlist for 2026.
The Cash Kings
Safety First: Companies with fortress balance sheets.
Cal-Maine Foods (CALM): The egg giant. While competitors struggle with expensive cage-free mandates, Cal-Maine has the capital to consolidate the industry. It is a regulatory play disguised as a farm, boasting zero debt and massive returns on capital.
Lancaster Colony (LANC): The hidden partner. This company drafts off the ad spend of chains like Chick-fil-A to sell their famous sauces in grocery stores. It is a debt-free licensing engine that turns restaurant popularity into retail royalties.
Weis Markets (WMK): The landlord grocer. In a high-rate world, Weis holds a massive advantage by owning most of its own real estate instead of leasing. It operates with a fortress balance sheet, effectively shielding itself from the pressures of rising rent costs.
Tootsie Roll (TR): The bank vault. Known for its iconic candies, this company is run with extreme financial conservatism and holds massive cash reserves. It is a "Dividend King" with 59 years of increases, prioritizing stability over aggressive growth.
The Hidden Compounders
Quality Growth: Boring businesses with wide moats.
WD-40 Company (WDFC): The utility. Found in 80 percent of American homes, this blue-and-yellow can has no true competitor and holds pricing power that rivals a utility. It offers a simple, high-margin business model that works regardless of economic conditions.
Inter Parfums (IPAR): The luxury middleman. By creating fragrances for brands like Jimmy Choo and Coach, this company captures the "affordable luxury" consumer who trades down from expensive handbags. Its capital-light model generates impressive returns without the risk of owning the fashion brands themselves.
Sprouts Farmers Market (SFM): The focused grocer. Avoiding the "everything store" battle, Sprouts builds smaller, profitable markets dedicated strictly to fresh produce and health trends. This disciplined expansion strategy generates superior unit economics compared to traditional supercenters.
The Value & Momentum Plays
Opportunistic Bets: Deep discounts or massive trend acceleration.
John B. Sanfilippo & Son (JBSS): The generic engine. As inflation pushes shoppers toward store brands, this manufacturer of private-label nuts captures the volume from retailers like Costco and Walmart. It trades at a significant discount to the market, acting as the "arms dealer" in the grocery wars.
Ingles Markets (IMKTA): The asset play. This southern grocer trades at a valuation that barely reflects the massive real estate portfolio sitting on its books. Investors buy it for the steady cash flow and keep it for the margin of safety provided by its hard assets.
Lifeway Foods (LWAY): The gut-health bet. Dominating the kefir category, Lifeway is capitalizing on the "Food as Medicine" movement and the dietary needs of GLP-1 weight-loss drug users. It is a high-growth momentum stock positioned at the center of a rapidly accelerating health trend.
Stay tuned for more, we will begin publishing individual stock research reports on our website.
Latest News
The Mid-Cap Bellwethers ($2B – $10B)
- Zions Bancorporation (ZION)
- Strong Beat. EPS of $1.76 (vs. $1.57 est) | Revenue $879M.
- This is a a major confidence check for businesses in the Western U.S. The deposit flight fears of 2023 are in the rearview.
- Comerica (CMA)
- Beat. EPS of $1.46 (vs. $1.28 est) | Revenue $850M.
- Comerica has been under a microscope for its commercial real estate (CRE) exposure. Squeezing out a profit beat despite those headwinds tells us that the CRE crisis is a slow burn.
- Bank OZK (OZK)
- Miss. EPS of $1.53 (vs. $1.58 est) | Revenue $441M.
- Bank OZK is the most aggressive construction lender in the game. While revenue remains robust, they missed profit estimates as they set aside more cash for potential credit losses.
The Small-Cap Signals (<$5B)
- ServisFirst Bancshares (SFBS)
- Double-Digit Beat. EPS of $1.58 (vs. $1.38 est).
- ServisFirst is a proxy for operational efficiency in the Southeast. Beating estimates this much suggests business activity in the Sunbelt is accelerating.
- Hancock Whitney (HWC)
- Beat. EPS of $1.49 (vs. $1.48 est).
- This is our check-in on the energy and industrial corridor of the Gulf South, results suggest the industrial economy down South is absorbing higher rates better than expected.
- Mercantile Bank (MBWM)
- Strong Beat. EPS of $1.40 (vs. $1.34 est).
- A steady beat from a Michigan-based lender confirms that the heartland consumer and small business owner are hanging in.
Movers and Shakers
- Corvus Pharmaceuticals (CRVS): The small-cap biotech was the day's undisputed star, rising 166 percent after releasing positive data from a Phase 1 trial of its atopic dermatitis drug. However, shares pulled back in after-hours trading when the company capitalized on the rally to announce a $150 million stock offering.
- Arrowhead Pharma (ARWR): Up 12%. Takeover rumors are swirling again as big pharma looks for RNAi assets to bolster their pipelines.
The Briefing
The Housing Update
All eyes are on Pending Home Sales at 10:00 AM ET. The consensus expectation is for a 2.6% decline (reversing last month's 3.3% gain).
The Yield Curve
The 10-year Treasury yield has pushed up to 4.29%, but the driver is new. Yesterday’s 7-basis-point spike was a reaction to the Greenland tariff threats. The geopolitical standoff hurt confidence in U.S. assets, causing a sell-off in Treasuries alongside stocks. This "sovereign risk" premium is dangerous because it tightens financial conditions regardless of what the Fed does next.
Today's Fun
On this day in 1954, the USS Nautilus, the world’s first nuclear-powered submarine, was launched into the Thames River in Groton, Connecticut.
Before the Nautilus, submarines were essentially surface ships that could dip underwater for short periods (running on battery power). The Nautilus broke through this limitation. Its nuclear reactor allowed it to stay submerged for months at a time without resurfacing for air, eventually making it the first vessel to cross the North Pole under the ice cap.
Bonus detail: It was christened by First Lady Mamie Eisenhower, who broke the traditional bottle of champagne across its bow, marking the start of the "nuclear navy" era.
Thank you for spending part of your morning with me. See you tomorrow. -Marques
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