over the course of the current bear market for equities consumer defensive stocks have lived up to their reputation as a relative safe haven for investors however despite their morebuoyant performance compared with many other corners of the market there remain names that are trading at discounted prices according to morningstar analysts that includes companies such as constellation brands stz and kellogg k to look for undervalued consumer defensive stocks we turned to the morningstar us consumer defensive index which measures the performance of companies engaged in the manufacturing of consumer items as of march 20 2023 the index lost 08 for the trailing 12month period while the broader market fell 95 as measured by the morningstar us market index there are a total of 82 stocks in the consumer defensive index 39 of which are covered by morningstar equity analysts of those 14 are undervalued as of march 20 2023 defensive stocks are generally resistant to economic cycles because their products are necessary in good times or bad consumer defensive companies are engaged in the manufacturing of food beverages householdpersonal products packaging or tobacco procter  gamble pg pepsico pep and costco wholesale cost are among the largest companies in the consumer defensive index we looked for the most undervalued stocks in the morningstar consumer defensive index that currently carry a morningstar rating of 4 or 5 stars then we screened for stocks that have earned a morningstar economic moat rating of wide in order to screen for companies with durable competitive advantages historically undervalued stocks with economic moats have performed better over time than lessprofitable and more highly indebted counterparts they also tend to protect against downturns and be less risky than lowerquality stocks these are the six most undervalued stocks in the morningstar consumer defensive index as of march 20 the most undervalued consumer defensive stock is constellation brands trading at a 23 discount to the fair value estimate set by morningstar analysts the least undervalued on the list is mondelez international trading at a 4 discount “while constellation brands historically made its bones as a winery and distillery we now view the firm as one of the most stellar brewers across our global coverage after parlaying ab inbev’s bud antitrust quandary allowing it to acquire mexican brewer grupo modelo into exclusive us ownership rights to brands like corona and modelo we see the firm’s overall mexican beer portfolio as auspiciously situated at the confluence of unwavering secular and demographic trends with an enviable growth profile and bestofbreed margins we have confidence that the beer business can thrive even amid an evolving industry landscape “the increase in political social and cultural clout of the hispanic population in the us is widely expected to continue which augurs well for constellation’s intangible assets the firm is not resting on its laurels however as it continues to expand its addressable market by widening the gamut of categories in which it competes one of the primary avenues through which it is seeking to do this is innovation with line extensions like corona refresca and fresca mixed being quintessential illustrations management seeks 25 of its growth to be driven by innovation a mark we think is achievable given the broad resonance of its trademarks another avenue is through acquisition currently embodied by its controlling stake in canopy growth cgc even as the outlook for cannabis in the us remains uncertain we remain sanguine on the optionality that this investment affords” “although nearterm uncertainty persists we think the firm’s robust exposure to these regions far outpacing the negligible contribution its domestic packagedfood peers derive will prove advantageous over a longer horizon in addition we surmise organic and inorganic pursuits to tailor its mix to local trends bolster the affordability of its fare and expand its routes to market should aid its growth prospects when combined with our expectations for favorable demographic and income trends for those regions longer term we forecast midsingledigit annual sales growth to emanate from these fastergrowing regions on average over the next decade versus the lowsingledigit growth we expect from its developed market regions in aggregate” “we think its position as a leading packaged food manufacturer and its arsenal of resources have afforded kellogg the ability to maintain valuable shelf space for its offerings even in the cereal aisle where category dynamics have languished from the onslaught of competition resulting from lowerpriced privatelabel fare other branded operators and the encroachment of smaller foes from within the category and other breakfast alternatives we see little to suggest this competition will subside but we think the strength of kellogg’s relationships with its retail partners should ultimately ensure its edge persists longer term” “brownforman has established itself as a stalwart in matured spirits an enclave of the distillation industry that we view as particularly attractive in addition to brand recognition and distribution companies in this industry benefit from scarcity value the result of the consumer perception surrounding the aging of this type of alcohol and the pricing power that this begets against this industry backdrop we believe brownforman’s portfolio anchored by the jack daniel’s brand boasts some of the highest cachet globally” “brownforman is also benefiting from growth abroad buoyed by the broader resurgence in global demand for bourbon we expect developed markets like the united kingdom as well as developing economies like mexico to be increasingly pertinent to its overall trajectory “still the company’s path will not be completely unencumbered tariff relief remains a nearterm tailwind but dollar strength figures to slow demand for proportionately more expensive us exports gotomarket changes also add a degree of execution risk despite a successful transition to owned distribution in the uk where it previously partnered with bacardi future transitions such as in taiwan may not yield similar results additionally while covid19 accelerated secular trends in developed markets developing markets face a more precarious outlook particularly amid a backdrop of swelling inflation in nondiscretionary spending categories nevertheless we expect that brownforman’s embedded advantages and experienced management team will help the company navigate these risks” “although the pandemic is presenting challenges for estee and its peers we remain optimistic about its competitive position and longterm strategy estee has made significant investments in omnichannel marketing and innovations that are helping the firm recover briskly from the pandemic and the subsequent inflation and supply chain disruptions” “in addition to the firm’s dominance in global prestige beauty estee also adds value to its retail partners by periodically launching new products exclusively with a specific retailer in order to drive excitement and traffic for the retailer and the brand “we believe that estee’s cost advantages also help to solidify its competitive edge given the firm’s position as the dominant player in prestige beauty we think it is afforded scalebased advantages related to procurement manufacturing and logistics” “altria is the leading tobacco manufacturer in the united states in fact with philip morris international pm owning the international rights to marlboro the us is currently altria’s only market resulting in moreconcentrated regulatory risk than for the other major tobacco players which are multinational we think it is logical in the face of that risk that altria is pursuing a multiprong approach to cigarette substitutes even though we harbor doubts about the longterm profitability of some of the emerging categories” “investors in tobacco companies particularly those holding shares in a singlemarket pure play like altria should have the stomach for fattail risk the shifting sands of regulation have created some new risks to altria’s business model in recent years and our morningstar uncertainty rating is medium “litigation risk still remains but adverse judgments have been manageable recently while it is almost impossible to forecast the magnitude of any awards against the tobacco industry we expect payouts to be within altria’s annual free cash flow” “since taking the helm at mondelez more than five years ago ceo dirk van de put has orchestrated a plan to drive balanced sales and profit growth by extending the distribution of its fare fueling investments behind its local and global brands empowering its local leaders and increasing its innovation agility aims that are hitting the mark against this backdrop mondelez targets 35 sales growth long term as it works to sell its wares in more channels and reinvests in new products aligned with consumer trends at home and abroad further it has looked to acquire niche brands to build out its category and geographic exposure which we think has been prudent” “raw material costs of cocoa sugar dairy and grains can fluctuate and may eat into mondelez’s profits from time to time this is particularly poignant now given concerns around the health of global consumers who are facing heightened prices at the shelf and increasing interest rates while these forces could prompt consumers to rein in their spending and ultimately trade down or out of the categories in which mondelez plays this has yet to manifest meaningfully in the biscuit and confectionery aisles we believe that regardless of the economic climate continued brand investments should blunt any lasting demise in volumes and market share we aren’t of the opinion though that merely directing more resources toward its brands will insulate its competitive position rather we think the firm will need to remain focused on ensuring these investments are utilized to align its fare with consumers’ changing palates and to ensure consumers are aware of this differentiation”