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 -7.2% decline paled in comparison to the S&P 500’s 22.6% gain.

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

Boston Beer (SAM)

Market Cap: $2.15 billion

Known for its flavorful beverages challenging the status quo, Boston Beer (NYSE: SAM) is a pioneer in craft brewing and a symbol of American innovation in the alcoholic beverage industry.

Why Are We Cautious About SAM?

1. Muted 1.6% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers
2. Modest revenue base of $2.05 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. Forecasted revenue decline of 4.2% for the upcoming 12 months implies demand will fall off a cliff

Boston Beer’s stock price of $206.06 implies a valuation ratio of 23.7x forward P/E. Dive into our free research report to see why there are better opportunities than SAM.

Edgewell Personal Care (EPC)

Market Cap: $897.7 million

Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE: EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.

Why Are We Out on EPC?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Sales over the last three years were less profitable as its earnings per share fell by 2.6% annually while its revenue was flat
3. Free cash flow margin dropped by 4.9 percentage points over the last year, implying the company became more capital intensive as competition picked up

At $19.32 per share, Edgewell Personal Care trades at 6.6x forward P/E. Check out our free in-depth research report to learn more about why EPC doesn’t pass our bar.

Dole (DOLE)

Market Cap: $1.22 billion

Known for its delicious pineapples and Hawaiian roots, Dole (NYSE: DOLE) is a global agricultural company specializing in fresh fruits and vegetables.

Why Do We Pass on DOLE?

1. Flat sales over the last three years suggest it must innovate and find new ways to grow
2. Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 8.4% that must be offset through higher volumes
3. Operating margin of 2.8% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments

Dole is trading at $12.83 per share, or 9.4x forward P/E. To fully understand why you should be careful with DOLE, check out our full research report (it’s free for active Edge members).

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