Consumer staples are considered safe havens in turbulent markets due to their inelastic demand profiles. The flip side is that they frequently fall behind growth industries when times are good, and this perception became a reality over the past six months as the sector was down 7.2% while the S&P 500 was up 22.6%.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Keeping that in mind, here is one consumer stock poised to generate sustainable market-beating returns and two that may face trouble.
Two Consumer Staples Stocks to Sell:
Kimberly-Clark (KMB)
Market Cap: $39.88 billion
Originally founded as a Wisconsin paper mill in 1872, Kimberly-Clark (NYSE: KMB) is now a household products powerhouse known for personal care and tissue products.
Why Do We Think Twice About KMB?
- 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
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.2%
- 6.3 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
Kimberly-Clark’s stock price of $119.95 implies a valuation ratio of 15.7x forward P/E. Dive into our free research report to see why there are better opportunities than KMB.
Clorox (CLX)
Market Cap: $13.75 billion
Founded in 1913 with bleach as the sole product offering, Clorox (NYSE: CLX) today is a consumer products giant whose product portfolio spans everything from bleach to skincare to salad dressing to kitty litter.
Why Are We Hesitant About CLX?
- Sales stagnated over the last three years and signal the need for new growth strategies
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Sales are projected to tank by 8.6% over the next 12 months as demand evaporates further
At $112.01 per share, Clorox trades at 19.1x forward P/E. If you’re considering CLX for your portfolio, see our FREE research report to learn more.
One Consumer Staples Stock to Watch:
BellRing Brands (BRBR)
Market Cap: $3.80 billion
Spun out of Post Holdings in 2019, Bellring Brands (NYSE: BRBR) offers protein shakes, nutrition bars, and other products under the PowerBar, Premier Protein, and Dymatize brands.
Why Does BRBR Stand Out?
- Products are flying off the shelves as its unit sales averaged 20.1% growth over the past two years
- Performance over the past three years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
BellRing Brands is trading at $30.27 per share, or 13.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
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