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 -13% decline paled in comparison to the S&P 500’s 9.9% gain.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here is one consumer stock boasting a durable advantage and two we’re passing on.
Two Consumer Staples Stocks to Sell:
Calavo (CVGW)
Market Cap: $388.3 million
A trailblazer in the avocado industry, Calavo Growers (NASDAQ: CVGW) is a pioneering California-based provider of high-quality avocados and other fresh food products.
Why Do We Think CVGW Will Underperform?
- Products have few die-hard fans as sales have declined by 17.2% annually over the last three years
- Modest revenue base of $693.7 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Gross margin of 10.1% is below its competitors, leaving less money to invest in areas like marketing and production facilities
At $21.80 per share, Calavo trades at 12.4x forward P/E. If you’re considering CVGW for your portfolio, see our FREE research report to learn more.
Conagra (CAG)
Market Cap: $8.28 billion
Founded in 1919 as Nebraska Consolidated Mills in Omaha, Nebraska, Conagra Brands today (NYSE: CAG) boasts a diverse portfolio of packaged foods brands that includes everything from whipped cream to jarred pickles to frozen meals.
Why Are We Out on CAG?
- Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Sales are projected to be flat over the next 12 months and imply weak demand
- Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
Conagra is trading at $17.40 per share, or 9.8x forward P/E. Dive into our free research report to see why there are better opportunities than CAG.
One Consumer Staples Stock to Watch:
Procter & Gamble (PG)
Market Cap: $334.9 billion
Founded by candle maker William Procter and soap maker James Gamble, Proctor & Gamble (NYSE: PG) is a consumer products behemoth whose product portfolio spans everything from facial tissues to laundry detergent to feminine care to men’s grooming.
Why Is PG on Our Radar?
- Customer loyalty and massive revenue base of $84.93 billion makes it a household name that influences purchasing decisions
- Disciplined cost controls and effective management resulted in a strong two-year operating margin of 25.6%
- PG is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Procter & Gamble’s stock price of $143.34 implies a valuation ratio of 20.3x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
Stocks We Like Even More
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