Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. But they’re also double-edged swords as they often lag in booming conditions, and this pattern has persisted recently. Over the past six months, the industry has recorded a loss of 1.5%, disappointing since the S&P 500 climbed 6.3%.
Given the low switching costs of basic goods like paper towels, many companies will continue generating poor results while only a handful will shine. Keeping that in mind, here are three consumer stocks best left ignored.
Molson Coors (TAP)
Market cap: $7.46 billion
Sporting an impressive roster of iconic beer brands, Molson Coors (NYSE: TAP) is a global brewing giant with a rich history dating back more than two centuries.
Why Is TAP Risky?
- Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 37 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
Molson Coors’s stock price of $40.14 implies a valuation ratio of 8.9x forward P/E. If you’re considering TAP for your portfolio, see our FREE research report to learn more.
Utz (UTZ)
Market cap: $1.27 billion
Tracing its roots back to 1921 when Bill and Salie Utz began making potato chips in their kitchen, Utz Brands (NYSE: UTZ) offers salty snacks such as potato chips, tortilla chips, pretzels, cheese snacks, and ready-to-eat popcorn, among others.
Why Are We Bearish on UTZ?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Revenue base of $1.45 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- ROIC of 0% reflects management’s challenges in identifying attractive investment opportunities
Utz is trading at $14.25 per share, or 17.7x forward P/E. Dive into our free research report to see why there are better opportunities than UTZ.
Ingredion (INGR)
Market cap: $6.02 billion
Known for its ability to turn ordinary corn into thousands of different food ingredients, Ingredion (NYSE: INGR) transforms grains, fruits, vegetables and other plant-based materials into specialty starches, sweeteners and other ingredients for food, beverage and industrial markets.
Why Is INGR Not Exciting?
- Products aren’t resonating with the market as its revenue declined by 4.2% annually over the last three years
- Sales are projected to be flat over the next 12 months and imply weak demand
- Free cash flow margin dropped by 6.1 percentage points over the last year, implying the company became more capital intensive as competition picked up
At $95.46 per share, Ingredion trades at 8.8x forward P/E. Check out our free in-depth research report to learn more about why INGR doesn’t pass our bar.
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