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 -8.9% decline paled in comparison to the S&P 500’s 15.3% gain.

Some companies can buck this trend, but the odds aren’t great for the ones we’re analyzing today. With that said, here are three consumer stocks that may face trouble.

Molson Coors (TAP)

Market Cap: $9.15 billion

Sporting an impressive roster of iconic beer brands, Molson Coors (NYSE: TAP) is a global brewing giant with a rich history dating back more than two centuries.

Why Should You Dump TAP?

1. Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
2. Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 33.7 percentage points
3. Underwhelming -0.7% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up

Molson Coors’s stock price of $46.22 implies a valuation ratio of 8.4x forward P/E. If you’re considering TAP for your portfolio, see our FREE research report to learn more.

Mondelez (MDLZ)

Market Cap: $73.78 billion

Founded as Nabisco in 1903, Mondelez (NASDAQ: MDLZ) is a packaged snacks powerhouse best known for its Oreo, Cadbury, Toblerone, Ritz, and Trident brands.

Why Does MDLZ Worry Us?

1. Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
2. Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 5.2 percentage points
3. 4.2 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position

At $57.18 per share, Mondelez trades at 18.6x forward P/E. Check out our free in-depth research report to learn more about why MDLZ doesn’t pass our bar.

J. M. Smucker (SJM)

Market Cap: $11.42 billion

Best known for its fruit jams and spreads, J.M Smucker (NYSE: SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.

Why Do We Avoid SJM?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Efficiency has decreased over the last year as its operating margin fell by 27.1 percentage points
3. ROIC of 2.2% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

J. M. Smucker is trading at $108.82 per share, or 11.3x forward P/E. To fully understand why you should be careful with SJM, check out our full research report (it’s free for active Edge members).

Stocks We Like More

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