Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. But they’re also double-edged swords as they often lag in booming conditions, and this pattern has persisted recently. Over the past six months, the industry has recorded a loss of 7.2%, a far cry from the S&P 500’s 22.6% ascent.
Given the low switching costs of basic goods like paper towels, many companies will continue generating poor results while only a handful will shine. On that note, here are three consumer stocks we’re passing on.
B&G Foods (BGS)
Market Cap: $321.6 million
Started as a small grocery store in New York City, B&G Foods (NYSE: BGS) is an American packaged foods company with a diverse portfolio of more than 50 brands.
Why Do We Think BGS Will Underperform?
- Annual sales declines of 3.9% for the past three years show its products struggled to connect with the market
- Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
- 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
B&G Foods’s stock price of $4.08 implies a valuation ratio of 7.6x forward P/E. Read our free research report to see why you should think twice about including BGS in your portfolio.
J&J Snack Foods (JJSF)
Market Cap: $1.69 billion
Best known for its SuperPretzel soft pretzels and ICEE frozen drinks, J&J Snack Foods (NASDAQ: JJSF) produces a range of snacks and beverages and distributes them primarily to supermarket and food service customers.
Why Does JJSF Worry Us?
- Revenue base of $1.6 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend
- Free cash flow margin shrank by 2.7 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
J&J Snack Foods is trading at $87.01 per share, or 33.4x forward EV-to-EBITDA. If you’re considering JJSF for your portfolio, see our FREE research report to learn more.
Utz (UTZ)
Market Cap: $899.9 million
Tracing its roots back to 1921 when Bill and Salie Utz began making potato chips in their kitchen, Utz Brands (NYSE: UTZ) offers salty snacks such as potato chips, tortilla chips, pretzels, cheese snacks, and ready-to-eat popcorn, among others.
Why Should You Dump UTZ?
- 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
- Modest revenue base of $1.44 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Underwhelming 0.3% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $10.63 per share, Utz trades at 11.7x forward P/E. Dive into our free research report to see why there are better opportunities than UTZ.
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