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 4.4%, a far cry from the S&P 500’s 6.2% ascent.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here is one consumer stock boasting a durable advantage and two we’re swiping left on.
Two Consumer Staples Stocks to Sell:
Brown-Forman (BF.B)
Market Cap: $14.38 billion
Best known for its Jack Daniel’s whiskey, Brown-Forman (NYSE: BF.B) is an alcoholic beverage company with a broad portfolio of brands in wines and spirits.
Why Is BF.B Not Exciting?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Projected sales decline of 3% for the next 12 months points to an even tougher demand environment ahead
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 6 percentage points
At $30.43 per share, Brown-Forman trades at 15.7x forward P/E. If you’re considering BF.B for your portfolio, see our FREE research report to learn more.
Freshpet (FRPT)
Market Cap: $2.97 billion
Standing out from typical processed pet foods, Freshpet (NASDAQ: FRPT) is a pet food company whose product portfolio includes natural meals and treats for dogs and cats.
Why Are We Hesitant About FRPT?
- Subscale operations are evident in its revenue base of $1.04 billion, meaning it has fewer distribution channels than its larger rivals
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Push for growth has led to negative returns on capital, signaling value destruction
Freshpet’s stock price of $61.45 implies a valuation ratio of 39.5x forward P/E. Dive into our free research report to see why there are better opportunities than FRPT.
One Consumer Staples Stock to Buy:
e.l.f. Beauty (ELF)
Market Cap: $7.14 billion
Short for "eyes, lips, face", e.l.f. Beauty (NYSE: ELF) is a developer of high-quality beauty products at accessible price points.
Why Is ELF a Top Pick?
- Remarkable 47.6% revenue growth over the last three years demonstrates its ability to capture significant market share
- Earnings per share have massively outperformed its peers over the last three years, increasing by 48.6% annually
- Free cash flow margin jumped by 6.5 percentage points over the last year, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
e.l.f. Beauty is trading at $121 per share, or 30.8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
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