Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. On the other hand, they usually underperform during bull runs, and this paradigm has rung true over the past six months as the sector’s -6.9% decline paled in comparison to the S&P 500’s 3% gain.
Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Keeping that in mind, here is one resilient consumer stock we’ve added to our cart and two we’re swiping left on.
Two Consumer Staples Stocks to Sell:
Edgewell Personal Care (EPC)
Market Cap: $930.6 million
Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE: EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.
Why Do We Avoid EPC?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Inability to adjust its cost structure while its revenue declined over the last year led to a 6.4 percentage point drop in the company’s operating margin
- 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Edgewell Personal Care’s stock price of $19.95 implies a valuation ratio of 9.6x forward P/E. Check out our free in-depth research report to learn more about why EPC doesn’t pass our bar.
Bunge Global (BG)
Market Cap: $23.75 billion
With origins dating back to 1818 and operations spanning both hemispheres to balance seasonal harvests, Bunge Global (NYSE: BG) is an agribusiness and food company that processes oilseeds, grains, and other agricultural commodities into vegetable oils, protein meals, flours, and specialty ingredients.
Why Does BG Worry Us?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 1.5% over the last three years was below our standards for the consumer staples sector
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 19.1% annually while its revenue grew
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $123.38 per share, Bunge Global trades at 14.9x forward P/E. To fully understand why you should be careful with BG, check out our full research report (it’s free).
One Consumer Staples Stock to Watch:
Altria (MO)
Market Cap: $110.9 billion
Best known for its Marlboro brand of cigarettes, Altria (NYSE: MO) offers tobacco and nicotine products.
Why Could MO Be a Winner?
- Products command premium prices and result in a best-in-class gross margin of 71.1%
- Excellent operating margin of 52.1% highlights the efficiency of its business model
- Strong free cash flow margin of 43.6% enables it to reinvest or return capital consistently, and its recently improved profitability means it’s becoming even less capital-intensive
Altria is trading at $66.25 per share, or 12x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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