Link's Philip Morris bet is based on valuation. The stock trades at 15X forward earnings, compared to 16X for the sector. She notes that it has a "very safe" dividend, yielding 5.24%, and she likes the management team.
The company's investment in "heat-not-burn" products could also be a meaningful catalyst for future growth. Since 2008 the New York-based company has spent more than $4.5 billion developing smoke-free products. The devices heat tobacco until it's warm enough to emit an aerosol but not quite hot enough to cause combustion, the chemical process responsible for producing toxins in cigarettes. But investors are unsure whether or not these new products will take off, and shares of Philip Morris have fallen 22.7% this year through Thursday's close.
Link also added to her position in Coca-Cola since she thinks the recent pullback is the chance to buy a quality stock at a discounted rate. The stock is currently trading in correction, having fallen nearly 13% from its 52-week high on January 26.
She believes the company's re-franchising efforts, especially when it comes to its bottling operations, will result in better organic growth and margins. At 19.5X forward earnings, it is also the cheapest stock among its peers, apart from Pepsi which trades at 17X forward earnings. Coke has fallen nearly 8% this year as of Thursday's close.
Finally, Link bought more Estée Lauder as she believes the secular trends in cosmetics and skin care are "phenomenal." She likes this name within beauty because she notes that it trades at a discount to peers like LVMH and L'Oreal, and she points to its recovery after earnings as an indication that it's in an upward trend.
The company beat analysts' expectations for both earnings and revenue when it reported Q1 results on May 2nd before the bell, and it also gave an upbeat forecast for 2018. But the stock fell after CEO Fabrizio Freda indicated on the post-earnings conference call that after years of growth in the cosmetics space, momentum might be starting to level off.
The stock has been moving steadily higher since May 2nd, and it has now recovered its post-earnings losses. Link noted that this recovery "speaks to the secular trend of where I want to be within the consumer."
Staples typically suffer in a high-rate, strong dollar environment, but Link believes these factors are more than reflected in the valuations of Philip Morris, Coca-Cola, and Estée Lauder.
"Clearly a higher dollar isn't good, but the valuations are well over-compensating for a higher dollar," she said. "And I don't see the dollar being super strong from here." She added that "in general higher rates are bad for stocks," but that "at these valuations it's more than reflected in these shares.".
While Link is unsure of when, or if, the tide will turn for Staples more broadly, she maintains that these picks are "high quality names that have been thrown out with the bath water...in the long-term I think [they] will be good."
Disclosure: Stephanie Link owns Philip Morris, Coca-Cola, and Estée Lauder.