The Strength of Boring Businesses: The Case for Staples and Healthcare

In this episode of InFocus, guest host Candis Fitch, CIM®, CIWM, TriCert Investment Counsel Portfolio Manager, sits down with fellow Portfolio Manager and CIO Brian Durno, CFP®, CFA®, to discuss the performance of two key sectors — Consumer Staples and Healthcare.

Amid inflation, interest rate uncertainty, and recession chatter, Brian explains why these traditionally defensive areas continue to warrant attention. They review Q1 highlights, including key quality signals such as dividend consistency and pricing power, and explain some of the core picks' fundamental performance relative to the broader sector averages. With fundamentals that point to stability and dividend strength, Brian shares why quality matters more than ever.

Whether you’re wondering how portfolio positioning shifts in uncertain markets or want to understand what’s under the hood in TriCert’s equity exposure, this is an insightful listen.

Recorded on June 3, 2025

DISCLAIMER: This content has been prepared by TriCert Investment Counsel Inc. The information, including forecast financial information, should not be considered as advice or a recommendation to investors and does not take into account your particular investment objectives or financial situation. Before acting on any information, you should consider the appropriateness of the information and speak with one of our portfolio managers. All securities and financial products or instrument transactions involve risks, including the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk. This content may contain forward-looking statements, including statements regarding our beliefs on current expectations and market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. TriCert Investment Counsel Inc. does not undertake any obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof to reflect the occurrence of unanticipated events. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside TriCert Investment Counsel Inc.’s control. Past performance is not a reliable indication of future performance.

Episode Transcript

(00:12):
Hello and welcome to this episode of In Focus.
I am your guest host, Candace Fitch, Portfolio Manager here at
Tricer Investment Council, joined today by fellow portfolio
manager and baseball fan, Brian Durnow.
Welcome, Brian. Thanks, Candace.
Today we're here to chat a little bit about the consumer

(00:33):
sector. So could you give us just a high
level sector update to start before we get into some nitty
gritty details? Sure.
Yeah. And I may end up providing you a
few of those nitty, ditty great details as I give you a recap
here. But we'll start the consumer
sector for us. I'll today cover consumer
staples sector and the healthcare sector that we sort

(00:56):
of lump into our consumer grouping at this juncture.
So let's just start maybe in theconsumer staple sector.
Just as a reminder to listeners,this is sort of a category that
is generally characterized by very stable earnings and, you
know, staples meeting things that you tend to buy even if
times are tough, something like soap or dish detergent, these
kinds of things, dishwasher soap, these kinds of things that

(01:17):
you you would buy no, no matter what.
So they tend to offer, you know,high levels of stability.
But yeah, so why don't I give you a recap?
So the just with respect to the business performance, which is
what we like to focus on, on thefundamental side of things, this
most recent quarter was just basically completed a few weeks
ago and the consumer staples sector produced about a -, 6%

(01:39):
growth rate in their earnings. So that's actually a decline in
their growth rates year over year.
Revenue growth was pretty flat for the group.
So that's kind of where the sector landed.
Of course, we don't own the whole sector.
We own our favorite stocks from the sector, but I might just
point out as a group, the sectorwas trading, you know, a little
bit more expensive than the average in the marketplace, but

(02:01):
not out of line with where it normally trades.
It normally does trade at a little bit of a premium because
of the stability in this sector.So maybe I'll, I'll give you a
couple highlights how that compares to some of the stocks
that we have collected our portfolios around under the hood
compared to this sort of the average.
So as I say, the, the growth rate from the staples sector was
around -6 for the quarter compared to our group, we only

(02:24):
had one stock that had negative growth rates.
The rest in North America had positive growth rates.
So we did a little bit better fundamentally on that side.
I I might caveat all this short term, you know, quarter by
quarter discussion, it is something we pay very close
attention to. But our, our time frame for
holding these stocks tends to bevery long, you know, so, but it
is important to keep track of how the companies are performing

(02:47):
fundamentally. As a matter of fact, actually
all all four of the stocks that we sort of covered in the North
American side this quarter and owned in the portfolio, they all
beat their expectations, which was kind of nice that they did a
little bit better than expected because expectations were kind
of high coming into the quarter.And what about healthcare?

(03:07):
Yeah, healthcare, there's some interesting things happening in
healthcare that this sector has been kind of, let's just say
left behind by the market in, inthe last little while.
And that has led to let's say more reasonably well, even you
might argue cheap valuations from the sector as a group, but
you really do have to look at the growth rate there to find
out if it's a value trap or if it actually is valued correctly.

(03:30):
But the actual absolute level ofvaluations from the healthcare
sector are, are not only cheap against the market, but cheap
against where they normally trade relative to that market.
So it's just kind of an interesting area to look at for
new ideas. The growth rates from the
quarter in that sector, the top line grew around 8% or so.

(03:50):
The earnings growth rate was actually very, very confusing
this time around because Gilead and Bristol-Myers, who are in
the sector, had extraordinarily high levels of growth that kind
of confused the growth rate fromthe sector.
But if you strip them out, the growth rate from this grouping
of stocks were roughly around 9%.
And our stocks actually has a collection underneath the hood

(04:12):
did a little bit better than that.
All the stocks in our grouping in the healthcare sector produce
positive growth rates year over year except for one.
So that was pretty good fundamental performance.
And I thought maybe I would share with you just a couple
details about some of the, let'ssee more quality characteristics
from this. Yeah.

(04:33):
As you know, we we tend to populate the portfolios with
very large companies. So the average size of the
company that we invest in, in the healthcare sectors about
$180 billion. So they've they've.
Been through so pretty big, yeah.
Yeah, totally. They've been, they've been
through a lot. And one of the other interesting
factoids that doesn't get talkedabout a lot is just the number
that let's say the consistency Healthcare can be another

(04:56):
relatively stable and attractivearea.
But they do depend on R&D and these kinds of things to keep
their their earnings growing over a long period of time.
So I thought I'd share with you the number of years on average
that these holdings that we collect our portfolios around
have increased their dividends. So it ranges from, yeah, from
from our highest one is 63 yearsof continuing increasing

(05:21):
dividends. So 63 years in a row, that's
quite a long time. If you averaged out all the
holdings in the portfolio, you're looking around 35 years
in terms of consistent number ofyears of dividend growth.
And it's, it's, it's nice. Yeah.
This group trade roughly around 15 times earnings which which
would compare to the market around 2021.

(05:41):
So like I say pretty high quality businesses return on
equities around 41% for our average company that we buy and
and this great excellent track record of dividend growth.
That's fantastic. And I know almost every stock
that we buy pays a dividend and a reason for that is obviously
it's a signal to us as portfoliomanagers of if the company is

(06:04):
making enough profit to be able to share that profit with its
shareholders. That's a really big quality
metric for us. I'd like to maybe rewind a
little bit and pull on the staples sector for a little bit.
You chatted about, you know, they've seen, I don't want to
say rough waters, but maybe lessthan expected growth rates are

(06:26):
lower than maybe last year. Can you tell us just a little
bit more on that in terms of some of those quality metrics
and why we still like them? I hate to say that you know, the
dreaded R word of recession, butI think staples are a place that
we seem to run to in times of ofconcern.
So I'd love to hear what your thoughts are on that and maybe

(06:47):
some of those quality metrics ofthose stocks in particular.
Sure. Yeah, there has been some, let's
say great clouds out there about, you know, discussions
about recession and the effects of Liberation Day down in the
in, in the States and the effects that's having on the the
economy. And I can say the staples sector
and the healthcare sector both combined tend to be the sectors
that can still deliver reasonably good fundamental

(07:10):
performance during a recession. So they tend to be areas that
attract a lot of capital during recessionary environment.
So in spite of the fundamental results we're seeing here today,
if it, if there were to be some sort of sort of macroeconomic
event like a recession or something like that, I, I would
probably still be very comfortable saying that these
two sectors would be, you know, let's say, more stable than some

(07:33):
of the other sectors that have more cyclical natures in their
revenues and, and earnings per share.
But yeah, you're asking about the staple sector.
So they're almost in, in some cases, a little bit of a victim
of their own success coming out of COVID, many of these
companies exhibited a great dealof pricing power.
And I, I might just say that, you know, this is one of those

(07:53):
things that fundamentally when you're investing in equities,
you actually are really are concerned about inflation
eroding your purchasing power. So when you buy a company that
flexes its muscle and shows thatthey can raise their prices
without affecting their volumes too heavily, then you've
basically found a company that'sgoing to be able to protect you
from inflation over the long, say 10 or 20 or 30 year period.

(08:17):
It's never fun as the consumer to pay those prices, but it is
one of those fundamental factorsthat you you want to make sure
that the company has the abilityto raise their prices over time
to deal with rising costs in their, in their own business.
So some of the growth rates, when you compare this year to
last year, they're they're comparing against tougher

(08:38):
comparables there. Yeah.
But I can say, you know, we do watch the volume pretty
carefully. Like, you know, you, you can
only raise prices so much beforethey people will actually stop
buying and substitute other goods.
And I can say probably as a group, this consumer staples
sector has has probably reached near the end of their capacity
to pass through tremendous amounts of pricing power.

(09:00):
They'll still be able to, in my opinion, keep up with inflation.
But these these huge, you know, double digit increases in prices
are hopefully behind us as consumers.
Yeah, not a great thing for consumers, but definitely a good
thing for investors to see that kind of power in the
marketplace. Well, thank you, Brian, for all
of your insights today. Wonderful hearing from you and

(09:22):
what's going on in the consumer sector.
Thank you. Of course, if anybody has any
questions about the information you've heard today, please reach
out to your advisor at your CPA firm or your Tricert Investment
Council portfolio manager. Take care.