Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. Unfortunately, the sector hasn’t provided much protection lately as it pulled back by 10.6% over the past six months. This drop was particularly disheartening since the S&P 500 held its ground.

Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. Taking that into account, here are three consumer stocks we’re steering clear of.

SunOpta (STKL)

Market Cap: $697 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 Does STKL Fall Short?

1. Sales tumbled by 4.2% annually over the last three years, showing consumer trends are working against its favor
2. Smaller revenue base of $742.7 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 16%

At $5.98 per share, SunOpta trades at 30x forward P/E. Dive into our free research report to see why there are better opportunities than STKL.

USANA (USNA)

Market Cap: $565.2 million

Going to market with a direct selling model rather than through traditional retailers, USANA Health Sciences (NYSE: USNA) manufactures and sells nutritional, personal care, and skincare products.

Why Is USNA Not Exciting?

1. Annual revenue declines of 8.7% over the last three years indicate problems with its market positioning
2. Revenue base of $876.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable

USANA’s stock price of $30.35 implies a valuation ratio of 11.2x forward P/E. To fully understand why you should be careful with USNA, check out our full research report (it’s free).

PepsiCo (PEP)

Market Cap: $177 billion

With a history that goes back more than a century, PepsiCo (NASDAQ: PEP) is a household name in food and beverages today and best known for its flagship soda.

Why Does PEP Worry Us?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 4.2% over the last three years was below our standards for the consumer staples sector
2. Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
3. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat

PepsiCo is trading at $129.19 per share, or 15.5x forward P/E. If you’re considering PEP for your portfolio, see our FREE research report to learn more.

High-Quality Stocks for All Market Conditions

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