Consumer staples are considered safe havens in turbulent markets due to their inelastic demand profiles. On the other hand, they usually underperform during bull runs, and this paradigm has rung true over the past six months as the sector was flat while the S&P 500 returned 14%.
Some companies can buck this trend, but the odds aren’t great for the ones we’re analyzing today. Keeping that in mind, here are three consumer stocks we would avoid.
Clorox (CLX)
Market Cap: $10.28 billion
Founded in 1913 with bleach as the sole product offering, Clorox (NYSE: CLX) today is a consumer products giant whose product portfolio spans everything from bleach to skincare to salad dressing to kitty litter.
Why Do We Think Twice About CLX?
- Annual sales declines of 3.1% for the past three years show its products struggled to connect with the market
- 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
- Free cash flow margin dropped by 4.7 percentage points over the last year, implying the company became more capital intensive as competition picked up
At $84.93 per share, Clorox trades at 14.7x forward P/E. Read our free research report to see why you should think twice about including CLX in your portfolio.
The Marzetti Company (MZTI)
Market Cap: $2.76 billion
Known for its frozen garlic bread and Parkerhouse rolls, The Marzetti Company (NASDAQ: MZTI) sells bread, dressing, and dips to the retail and food service channels.
Why Are We Hesitant About MZTI?
- 1.6% annual revenue growth over the last three years was slower than its consumer staples peers
- Modest revenue base of $1.91 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Gross margin of 23.9% is an output of its commoditized products
The Marzetti Company’s stock price of $101.28 implies a valuation ratio of 15.3x forward P/E. Dive into our free research report to see why there are better opportunities than MZTI.
Nature's Sunshine (NATR)
Market Cap: $230.3 million
Started on a kitchen table in Utah, Nature’s Sunshine (NASDAQ: NATR) manufactures and sells nutritional and personal care products.
Why Does NATR Fall Short?
- Sales trends were unexciting over the last three years as its 4.4% annual growth was below the typical consumer staples company
- Revenue base of $492 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Estimated sales growth of 2.8% for the next 12 months implies demand will slow from its three-year trend
Nature's Sunshine is trading at $13 per share, or 12.2x forward P/E. To fully understand why you should be careful with NATR, check out our full research report (it’s free).
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