So interest rates have spiked up for the fourth consecutive month this week.
This means Australians will be locking up their wallets and cutting out any unnecessary spending.
In such times, investors understandably turn to ASX shares of companies that produce consumer staples.
And the very prototypes of necessities are food and drinks.
But Shaw and Partners portfolio manager James Gerrish warns that one can't just blindly buy all consumer staple ASX shares and expect success.
You still need to look at the company's performance and prospects.
Image source: Getty Images
Firstly, the stock to stay away from
Gerrish took United Malt Group Ltd (ASX: UMG) as an example.
"As an investor it's easy to use the old throwaway line 'people have to eat' when considering some defensive positions within a portfolio," he said in a Market Matters newsletter.
"But like all stocks a company needs to grow earnings to deliver results to shareholders."
United Malt has been a bitter disappointment to shareholders in recent times.
"UMG has failed to deliver, resulting in its shares trading well below its panic COVID lows whilst the S&P/ASX 200 Index (ASX: XJO) has rallied ~60% over the same period."
The malt maker put out an earnings upgrade on Monday that saw its share price plunge a painful 13% that morning.
"The company has struggled with poor quality/high-cost North American barley which is flowing down into higher production costs and falling margins — never a good combination," said Gerrish.
"The business is optimistic about an improvement in H2. But hope doesn't pay the bills!"
The Market Matters team would avoid United Malt shares like the plague.
So which are the consumer staple stocks that they would go for?
Chicken dinners for everyone
Shares for chicken producer Inghams Group Ltd (ASX: ING) haven't performed that much better recently than United Malt.
The stock has plunged more than 20% year to date, and has lost 14.5% over the past five years.
But it's a winner winner for Australians about to tighten their belts, according to Gerrish.
"Poultry business Inghams fell to fresh all-time lows in June courtesy of rising fuel and feed costs plus labour shortages have also weighed on the cost and scale of production," he said.
"We like the company's position into tougher economic times with chicken providing a cheaper protein alternative to say steak. Plus a forecasted yield in excess of 5% fully franked over the next 12-months is attractive in most interest rate environments."
His team suggests accumulating Ingham shares on dips.
Some drinks to forget tough times
Gerrish went cold on winemaker Treasury Wine Estates Ltd (ASX: TWE) earlier this year, but his team is having second thoughts.
"In hindsight this move is starting to feel average to wrong especially as the alcohol industry usually enjoys tough economic times."
Treasury Wine went through a difficult period in 2020 as Australia's request for an investigation into the origins of COVID-19 triggered a diplomatic spat with China.
"China has been the thorn in the company's side courtesy of heavy-handed tariffs out of Beijing but this has forced the company to reposition itself which we feel leaves it well-structured for the coming years."
The share price remains well below its pre-pandemic high, but Gerrish feels this could attract some merger interest.
"The stock is not overly cheap but solid year-on-year growth looks achievable to justify an FY23 PE of 22x," he said.
"We like Treasury Wine Estates plus it remains a potential takeover target although tight money markets may delay any action out of Europe."
Gerrish's team suggests buying into Treasury Wines at around the $12 mark. The stock closed Wednesday at $12.27.
