Consumer staples are considered safe havens in turbulent markets due to their inelastic demand profiles. 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 1.3% while the S&P 500 was up 16.9%.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, here is one resilient consumer stock we’ve added to our cart and two best left ignored.
Two Consumer Staples Stocks to Sell:
J. M. Smucker (SJM)
Market Cap: $13 billion
Best known for its fruit jams and spreads, J.M Smucker (NYSE: SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.
Why Do We Pass on SJM?
- Falling unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Projected sales decline of 2.3% for the next 12 months points to a tough demand environment ahead
- ROIC of 1.3% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
At $121.91 per share, J. M. Smucker trades at 12.1x forward P/E. Read our free research report to see why you should think twice about including SJM in your portfolio.
Kraft Heinz (KHC)
Market Cap: $28.29 billion
The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ: KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.
Why Do We Steer Clear of KHC?
- Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Poor expense management has led to operating margin losses
- Push for growth has led to negative returns on capital, signaling value destruction, and its falling returns suggest its earlier profit pools are drying up
Kraft Heinz is trading at $23.92 per share, or 12x forward P/E. Check out our free in-depth research report to learn more about why KHC doesn’t pass our bar.
One Consumer Staples Stock to Buy:
Vita Coco (COCO)
Market Cap: $3.50 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 Is COCO a Good Business?
- Products are selling at a rapid clip as its unit sales averaged an outstanding 15.2% growth rate over the past two years
- Additional sales over the last three years increased its profitability as the 42.9% annual growth in its earnings per share outpaced its revenue
- Free cash flow margin expanded by 12.9 percentage points over the last year, providing additional flexibility for investments and share buybacks/dividends
Vita Coco’s stock price of $60.25 implies a valuation ratio of 28.3x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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