Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. Unfortunately, the sector hasn’t provided much protection lately as it pulled back by 10% over the past six months. This drop was worse than the S&P 500’s 1.6% fall.
Given the low switching costs of basic goods like paper towels, many companies will continue generating poor results while only a handful will shine. Keeping that in mind, here are three consumer stocks we’re swiping left on.
USANA (USNA)
Market Cap: $532.4 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?
- Sales tumbled by 10.4% annually over the last three years, showing consumer trends are working against its favor
- Smaller revenue base of $854.5 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Sales were less profitable over the last three years as its earnings per share fell by 23.1% annually, worse than its revenue declines
At $27.81 per share, USANA trades at 9.8x forward price-to-earnings. Read our free research report to see why you should think twice about including USNA in your portfolio.
Coca-Cola (KO)
Market Cap: $304.4 billion
A pioneer and behemoth in carbonated soft drinks, Coca-Cola (NYSE: KO) is a storied beverage company best known for its flagship soda.
Why Do We Think Twice About KO?
- Sizable revenue base leads to growth challenges as its 6.7% annual revenue increases over the last three years fell short of other consumer staples companies
- Efficiency has decreased over the last year as its operating margin fell by 3.4 percentage points
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 11.2 percentage points
Coca-Cola’s stock price of $70.89 implies a valuation ratio of 24.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than KO.
Fresh Del Monte Produce (FDP)
Market Cap: $1.46 billion
Translating to "of the mountain" in Spanish, Fresh Del Monte (NYSE: FDP) is a leader in providing high-quality, sustainably grown fresh fruits and vegetables.
Why Should You Dump FDP?
- Sales stagnated over the last three years and signal the need for new growth strategies
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 8.3%
- Underwhelming 5.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
Fresh Del Monte Produce is trading at $30.60 per share, or 10.7x forward price-to-earnings. If you’re considering FDP for your portfolio, see our FREE research report to learn more.
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