The S&P 500 Consumer Staples stock index has returned more than 7% year to date, well ahead of its 1.6% gain for all of 2025. But the recovery has been wildly uneven.

Target shares have surged 60% this year, and Coca-Cola has gained 23%. Meanwhile, Cheerios maker General Mills and Campbell's, known for its canned soup, have fallen 31% and 29%, respectively.

The divergence creates opportunities for stockpickers like Ben Shuleva, consumer-sector leader at Fidelity Investments and co-manager of the Fidelity Select Consumer Discretionary Portfolio and Fidelity Select Consumer Staples Portfolio, with combined assets of about $2 billion. Shuleva has managed the Consumers Staples fund since 2020. It returned 14.5% in the first eight months of 2026, outperforming the 9.9% gain in its sector benchmark, the MSCI US IMI Consumer Staples 25/50 Index.

Barron's spoke with Shuleva on Sept. 25 about how consumer spending trends, GLP-1 drugs, commodity inflation, and artificial intelligence are affecting staples stocks, and which names he finds most attractive. An edited version of the conversation follows.

Barron's: Consumer-staples companies and stocks have been struggling. What could brighten this picture?

Ben Shuleva: The backdrop for staples is challenging. Unlike discretionary categories that can rely on the top 10% of consumers to spend and drive the business, the top 10% and bottom 10% of consumers generally use the same amount of toilet paper. So, the staples companies really need broad consumer health, and that isn't something we have today. But this doesn't mean there aren't opportunities in the sector.

We should think of staples as a seat belt: The best relative environment for staples is always a terrible environment elsewhere. Today's broader market is unusual in how narrow it is-both in market cap and what is driving the economic growth. So much is dependent on artificial intelligence and the associated investments in physical infrastructure. If any of the fears we have for the AI trade turn into real, concrete challenges, you would expect a flight to safety, and staples would benefit.

How will staples companies deal with elevated energy costs and commodity inflation?

Staples companies buy commodities and sell brands to capture the spread in between. Given persistent inflation, the cost side of the equation has gotten much worse, and companies will have to raise prices to manage margins. But consumers have been eating higher inflation for five to six years and volumes are already weak, so it's going to be challenging.

The industry will need more sophisticated price-pack architecture to manage demand elasticity, which means keeping the same price points but offering smaller pack size. Many companies are already doing it. If oil stays at this level, many companies will have to make harder decisions over the next 12 to 18 months-decisions like rationalizing production capacity and closing plants-to improve productivity.

How is AI disrupting consumer companies, and how should they adapt?

On the one hand, barriers to entry are coming down. AI can help new entrants go to market faster, with smarter and better content, so it enables more competition. On the other hand, we are seeing leading companies use AI to bring innovation faster, and save money.

We need to approach the question of AI's impact with humility and acknowledge that the outcome we predict today is highly uncertain since the space is moving so fast. Twelve months ago, OpenAI launched instant checkout for ChatGPT and announced partnerships with retailers such as Walmart and Shopify. At the time, this was expected to catalyze AI disruption of retail. Just six months later, OpenAI said it would allow merchants to use their own checkout.

The risk I see is a change in how consumers discover products. When you shop on a retailer's website, you're shown sponsored products, recommendations, and advertisements throughout the purchasing process. Retailers monetize that activity at every stage.

When that product discovery occurs off-site or via an AI agent, the retailer doesn't engage directly with consumers and generate first-party data. Instead, it acts primarily as a fulfillment mechanism, and the funnel-be it ChatGPT, Claude, or the recently launched Muse-is more in control of the higher-value piece of that transaction.

Without advertising, the e-commerce model doesn't really work. Even at Amazon.com, with all the scale it has, the majority of its retail operating profit comes from advertising.

Could the widespread use of GLP-1 weight-loss treatments hurt food-and-beverage demand in the longer term?

I have described the potential disruption from GLP-1s as both big and small. The percentage of GLP-1 users is staggering. It is about 10% of the U.S. adult population, and it's growing as lower-priced options have become available. But the actual impact on food-and-beverage companies is probably less than we think. If we assume another 25 million Americans start taking GLP-1 drugs over the next five years and each reduces calorie consumption by 20%, that would translate into roughly a 30-basis-point annual drag on total U.S. calorie consumption. [A basis point is a hundredth of a percentage point.] And the persistence of the drugs isn't guaranteed.

Certainly, health and wellness is a durable trend, and products and brands either need to adjust or face declines. But certain categories are more negatively impacted than others. Beverage companies, for example, might be better insulated since they have been offering low-sugar and no-sugar variants for years, and those products are showing strong growth.

You have been fairly bullish on the beverage industry. Does the industry have a structural advantage over other staples markets?

Consumer brands are living in an age of disruption. The barrier to entry has come down significantly. The new form of advertising allows brands to target a hyperspecific segment of consumers with high conversion rates and direct feedback, while e-commerce eliminated the space constraints of bricks-and-mortar retail that favored large incumbents.

New entrants can directly speak to, sell to, and deliver the goods to consumers. This has been fueling the growth of many emerging brands. But there is a spectrum of disruption for different industries. E-commerce works well for lightweight products at a high price point. It's hard to make the model work for things that are bulky and heavy.

It's relatively easy to manufacture and distribute packaged food, so a smaller brand that has done good marketing can scale spectacularly. Beverages are harder to manufacture, and distribution is a significant barrier to entry. It's much easier to get a snack on shelves at Walmart than it is to have a cold beverage in a fridge at every 7-Eleven across the country. There are really only three major national soft-drink distribution systems in the U.S.: Coca-Cola, PepsiCo, and Keurig Dr Pepper.

Coca-Cola and Keurig Dr Pepper are both top holdings in your fund. What makes them attractive?

Coke is still robust. It's one of the highest-quality consumer companies in the world. It's winning in durable ways in a very advantaged category. The distribution advantage of Coke is even greater internationally. Just as an example, I climbed Mount Everest in 2022. On the hike up to base camp, you pass these local tea houses, and every tea house sold Coke and Sprite. The stock is up [Coca-Cola shares rose more than 30% in the past year], but it still trades at a pretty big discount to some of the other best-in-class consumer companies such as Walmart, Costco Wholesale, and Marriott International. [Coke trades for 25 times the next 12 months' expected earnings.]

Keurig Dr Pepper is a more complex story. The company completed its acquisition of JDE Peet's in April, and is using that purchase to create a beefed-up coffee business that will be spun out in early 2027. There is a lot of deal-related complexity with that pending transaction, which makes it hard for investors to understand the business and price the stock. But that means opportunity. The stock has an attractive valuation, and there is an identifiable catalyst on the horizon. [Keurig Dr Pepper is trading for about 13 times forward earnings.]

Constellation Brands and Diageo have suffered from a decline in alcohol sales. What is the investment outlook now?

This year has been another disappointing year for alcohol sales. Expectations were high going into the year because poor weather and weak demand from lower-income and Hispanic consumers had hurt sales in 2025, setting a relatively easy bar for year-over-year growth. We also had two huge events this year-the World Cup and America's 250th birthday. The hope was that those factors would drive an inflection in alcohol volumes, but that hasn't happened.

Some of the structural headwinds are here to stay, and alcohol companies need to adapt to the new reality. Diageo just hired a new CEO, and recently announced steps to cut costs and get lean. It's using the savings to reinvest in both the brands and price points. I think that is directionally the right strategy that the industry needs to take in a lower-growth environment.

Constellation has continued to gain market share in U.S. beer despite the broader industry's weakness. It also has a new CEO, and I'm eager to see how he approaches this new reality in alcohol.

You have cited the structural challenges facing the packaged-food industry. Yet, Mondelez International is one of the top holdings in your fund. What separates it from peers?