Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. Surprisingly, the sector hasn’t played its shielding role over the past six months as it tumbled 13.9%. This drop was noticeably worse than the S&P 500’s 1.9% decline.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. On that note, here is one resilient consumer stock we’ve added to our cart and two we’re steering clear of.
Two Consumer Staples Stocks to Sell:
Central Garden & Pet (CENT)
Market Cap: $2.10 billion
Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ: CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.
Why Are We Out on CENT?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam
At $36.63 per share, Central Garden & Pet trades at 16.1x forward P/E. If you’re considering CENT for your portfolio, see our FREE research report to learn more.
Herbalife (HLF)
Market Cap: $778.1 million
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE: HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Why Does HLF Fall Short?
- Declining unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Sales are projected to be flat over the next 12 months and imply weak demand
- Earnings per share have contracted by 21.7% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Herbalife’s stock price of $7.52 implies a valuation ratio of 3.7x forward P/E. Check out our free in-depth research report to learn more about why HLF doesn’t pass our bar.
One Consumer Staples Stock to Watch:
Altria (MO)
Market Cap: $100.4 billion
Best known for its Marlboro brand of cigarettes, Altria (NYSE: MO) offers tobacco and nicotine products.
Why Do We Like MO?
- Products command premium prices and result in a best-in-class gross margin of 70.2%
- Excellent operating margin of 53.6% highlights the efficiency of its business model
- Strong free cash flow margin of 42.9% enables it to reinvest or return capital consistently
Altria is trading at $59.69 per share, or 11.2x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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