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’s -2.6% decline paled in comparison to the S&P 500’s 5% gain.
Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. Keeping that in mind, here are three consumer stocks we’re passing on.
SunOpta (STKL)
Market Cap: $767.1 million
Committed to clean-label foods, SunOpta (NASDAQ: STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.
Why Should You Dump STKL?
- Annual revenue declines of 1.6% over the last three years indicate problems with its market positioning
- Subscale operations are evident in its revenue base of $792.4 million, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 15.5% is an output of its commoditized products
SunOpta’s stock price of $6.49 implies a valuation ratio of 36.5x forward P/E. Dive into our free research report to see why there are better opportunities than STKL.
Dole (DOLE)
Market Cap: $1.44 billion
Known for its delicious pineapples and Hawaiian roots, Dole (NYSE: DOLE) is a global agricultural company specializing in fresh fruits and vegetables.
Why Do We Avoid DOLE?
- 4.6% annual revenue growth over the last three years was slower than its consumer staples peers
- Gross margin of 8.1% is an output of its commoditized products
- Operating margin of 2.6% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
At $15.20 per share, Dole trades at 11.1x forward P/E. Read our free research report to see why you should think twice about including DOLE in your portfolio.
Archer-Daniels-Midland (ADM)
Market Cap: $33.75 billion
Transforming crops from the world's most productive agricultural regions into everyday essentials, Archer-Daniels-Midland (NYSE: ADM) processes and transports agricultural commodities like grains and oilseeds while manufacturing ingredients for food, beverages, feed, and industrial applications.
Why Do We Think Twice About ADM?
- Products aren't resonating with the market as its revenue declined by 7.5% annually over the last three years
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 6.5%
- Earnings per share have contracted by 24.2% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Archer-Daniels-Midland is trading at $70.27 per share, or 16.7x forward P/E. If you’re considering ADM for your portfolio, see our FREE research report to learn more.
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