Consumer staples are considered safe havens in turbulent markets due to their inelastic demand profiles. Unfortunately, the sector hasn’t provided much protection lately as it pulled back by 9.7% over the past six months. This drop was worse than the S&P 500’s 2% loss.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one resilient consumer stock we’ve added to our cart and two we’re passing on.
Two Consumer Staples Stocks to Sell:
McCormick (MKC)
Market Cap: $22.07 billion
The classic red Heinz ketchup bottle’s competitor, McCormick (NYSE: MKC) sells food-flavoring products like condiments, spices, and seasoning mixes.
Why Is MKC Not Exciting?
- 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
- Anticipated sales growth of 2.2% for the next year implies demand will be shaky
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 5.4 percentage points
McCormick’s stock price of $82.31 implies a valuation ratio of 26.3x forward price-to-earnings. To fully understand why you should be careful with MKC, check out our full research report (it’s free).
Medifast (MED)
Market Cap: $143.7 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 Do We Pass on MED?
- Products have few die-hard fans as sales have declined by 26.6% annually over the last three years
- Sales were less profitable over the last three years as its earnings per share fell by 76.5% annually, worse than its revenue declines
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 10.3 percentage points
At $13.48 per share, Medifast trades at 45.7x forward price-to-earnings. Check out our free in-depth research report to learn more about why MED doesn’t pass our bar.
One Consumer Staples Stock to Watch:
Altria (MO)
Market Cap: $101.5 billion
Best known for its Marlboro brand of cigarettes, Altria (NYSE: MO) offers tobacco and nicotine products.
Why Are We Fans of MO?
- Differentiated product offerings are difficult to replicate at scale and lead to a best-in-class gross margin of 69.9%
- Disciplined cost controls and effective management resulted in a strong two-year operating margin of 55.7%
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
Altria is trading at $60.10 per share, or 11.2x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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Get started by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
