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?

1. Annual sales declines of 3.9% for the past three years show its products struggled to connect with the market
2. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
3. 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?

1. Revenue base of $1.6 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
2. Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend
3. 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?

1. 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
2. Modest revenue base of $1.44 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
3. 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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