Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. The flip side is that they frequently fall behind growth industries when times are good, and this perception became a reality over the past six months as the sector was down 5.7% while the S&P 500 was up 8.3%.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here is one consumer stock boasting a durable advantage and two best left ignored.
Two Consumer Staples Stocks to Sell:
Hormel Foods (HRL)
Market Cap: $13.76 billion
Best known for its SPAM brand, Hormel (NYSE: HRL) is a packaged foods company with products that span meat, poultry, shelf-stable foods, and spreads.
Why Are We Out on HRL?
- Shrinking unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- Gross margin of 16.2% is below its competitors, leaving less money to invest in areas like marketing and production facilities
Hormel Foods is trading at $25.01 per share, or 16.4x forward P/E. Dive into our free research report to see why there are better opportunities than HRL.
Hain Celestial (HAIN)
Market Cap: $44.98 million
Sold in over 75 countries around the world, Hain Celestial (NASDAQ: HAIN) is a natural and organic food company whose products range from snacks to teas to baby food.
Why Do We Steer Clear of HAIN?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Sales were less profitable over the last three years as its earnings per share fell by 32.1% annually, worse than its revenue declines
- 6× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Hain Celestial’s stock price of $0.50 implies a valuation ratio of 9x forward P/E. Check out our free in-depth research report to learn more about why HAIN doesn’t pass our bar.
One Consumer Staples Stock to Buy:
Vita Coco (COCO)
Market Cap: $3.87 billion
Founded in 2004 followed by a 2021 IPO, The Vita Coco Company (NASDAQ: COCO) offers coconut water products that are a natural way to quench thirst.
Why Will COCO Beat the Market?
- Products are flying off the shelves as its unit sales averaged 15.2% growth over the past two years
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 42.9% outpaced its revenue gains
- Free cash flow margin jumped by 12.9 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $66.60 per share, Vita Coco trades at 32.2x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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