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 2.6% while the S&P 500 was up 5.8%.
Some companies can buck this trend, but the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three consumer stocks we’re swiping left on.
Campbell's (CPB)
Market Cap: $6.34 billion
With its iconic canned soup as its cornerstone product, Campbell's (NASDAQ: CPB) is a packaged food company with an illustrious portfolio of brands.
Why Are We Out on CPB?
- Falling unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Estimated sales decline of 2.8% for the next 12 months implies a challenging demand environment
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 5.1% annually while its revenue grew
Campbell's is trading at $21.27 per share, or 9.7x forward P/E. To fully understand why you should be careful with CPB, check out our full research report (it’s free).
Herbalife (HLF)
Market Cap: $1.76 billion
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 Worry Us?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Projected sales growth of 4.3% for the next 12 months suggests sluggish demand
- Issuance of new shares over the last three years caused its earnings per share to fall by 14.4% annually, even worse than its revenue declines
At $16.98 per share, Herbalife trades at 6.6x forward P/E. Dive into our free research report to see why there are better opportunities than HLF.
Ingredion (INGR)
Market Cap: $7.20 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 Does INGR Fall Short?
- Sales tumbled by 3.1% annually over the last three years, showing consumer trends are working against its favor
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.7%
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 8.3 percentage points
Ingredion’s stock price of $117.17 implies a valuation ratio of 10.2x forward P/E. Read our free research report to see why you should think twice about including INGR in your portfolio.
Stocks We Like More
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