My 2 Favorite Stocks to Buy Right Now

Key Points

• There is a push toward healthier lifestyles right now, which has been bad news for makers of consumer staples.

• Valuations of some of the biggest and best-run consumer staples companies have come down thanks to stock price declines.

• If you are conservative and think long term, this is an opportunity to buy a pair of well-run Dividend Kings with attractive yields.

• 10 stocks we like better than Coca-Cola ›

Wall Street is an emotional place, with stories often holding more sway than current facts or even historical precedent. That's on display today in the staples sector. Even some of the best-run businesses are getting hit by the fear of a shift toward healthier fare among consumers, as if companies lack the capacity to adjust to the changes.

If you think long term, the negative view of consumer staples makers is a buying opportunity. Here are two of my favorite Dividend King stocks in the sector right now.

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What's wrong with consumer staples stocks?

Consumer staples companies make things that are bought frequently, are necessities, and generally have relatively low costs. Think things like food and toilet paper. You aren't about to stop buying either of those even if there is a deep recession. For this reason, consumer staples makers tend to be seen as fairly consistent businesses.

Right now, however, companies that make food and beverages are largely on the outs with investors. That's because there is a trend among consumers toward healthier food and beverage options. The fear seems to be that companies will see a period of top- and bottom-line weakness, which is likely to be true.

In fact, some of the largest consumer staples companies are, indeed, struggling today. But the story that is driving consumer staples stocks lower is really based on short-term thinking. Many of these companies have been in existence for 50 to 100 years, or even more in some cases. Consumer tastes have changed before and these companies figured out ways to adapt. It is highly likely they will do so again.

My two favorite Dividend King options

I tend to focus on companies that have long histories of increasing their dividends, which means I really like Dividend Kings (companies with 50+ annual dividend hikes). There are a number of consumer staples options in the Dividend King universe but on a risk/reward basis, my two favorites right now are Dividend King beverage giants Coca-Cola (NYSE: KO) and PepsiCo (NASDAQ: PEP).

Notably, Coca-Cola was able to grow its organic sales 5% in the second quarter while PepsiCo's organic sales increased 2.1%. It wouldn't be correct to suggest either business is hitting on all cylinders right now, but it also wouldn't be fair to suggest that either one is failing terribly. They are muddling through.

Coca-Cola is performing better as a business and is more appropriate for conservative investors. It is offering a roughly 3% dividend yield and a recent price pullback has left the stocks price-to-sales and price-to-earnings ratios below their five-year averages. It isn't on deep discount, but the stock looks fairly priced to a little cheap. If you don't like taking risks, considering the relatively strong business performance, you'll probably want to go with beverage-focused Coca-Cola.

I tend to be a bit more aggressive, so I've opted to buy PepsiCo. It isn't performing as well, but it has a more diverse business, with operations in the beverage, snack, and packaged food niches. It also has a higher dividend yield at roughly 4%, which happens to be near the highest levels in the company's recent history. The stock's P/S and P/E ratios, meanwhile, suggests a compelling valuation relative to the five-year averages for each of those metrics.

This too shall pass, eventually

There are other consumer staples stocks you could buy (and I own some of them, too). But given the strong histories behind Coca-Cola and PepsiCo I believe they are two of the best options among out-of-favor consumer staples makers. Coca-Cola is the more conservative option, with PepsiCo appropriate for investors willing to take on a bit more uncertainty. If you think in decades and not days, like most of Wall Street, you'll likely find buying one (or both) of these Dividend Kings turns out very well for your dividend portfolio.

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Reuben Gregg Brewer has positions in PepsiCo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.