Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. Surprisingly, the sector hasn’t played its shielding role over the past six months as it tumbled 5.5%. This drawdown was worse than the S&P 500’s 2.3% loss.
Some companies can buck this trend, but the odds aren’t great for the ones we’re analyzing today. On that note, here are three consumer stocks we’re swiping left on.
Post (POST)
Market Cap: $4.80 billion
Founded in 1895, Post (NYSE: POST) is a packaged food company known for its namesake breakfast cereal and healthier-for-you snacks.
Why Do We Think Twice About POST?
- Declining unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Post’s stock price of $100.32 implies a valuation ratio of 13.6x forward P/E. If you’re considering POST for your portfolio, see our FREE research report to learn more.
Medifast (MED)
Market Cap: $106.9 million
Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE: MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.
Why Is MED Risky?
- Products aren't resonating with the market as its revenue declined by 37.7% annually over the last three years
- Subscale operations are evident in its revenue base of $385.8 million, meaning it has fewer distribution channels than its larger rivals
- Earnings per share have dipped by 28.8% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Medifast is trading at $10.36 per share, or 9.5x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including MED in your portfolio.
USANA (USNA)
Market Cap: $311.9 million
Going to market with a direct selling model rather than through traditional retailers, USANA Health Sciences (NYSE: USNA) manufactures and sells nutritional, personal care, and skincare products.
Why Does USNA Fall Short?
- Sales tumbled by 2.5% annually over the last three years, showing consumer trends are working against its favor
- Revenue base of $925.3 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 18.8% annually, worse than its revenue
At $16.90 per share, USANA trades at 8.5x forward P/E. To fully understand why you should be careful with USNA, check out our full research report (it’s free).
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