Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. Surprisingly, the sector hasn’t played its shielding role over the past six months as it tumbled 9.7%. This performance was worse than the S&P 500’s 2% decline.
Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. On that note, here are three consumer stocks best left ignored.
Boston Beer (SAM)
Market Cap: $2.65 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 Wary of SAM?
- Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
- Subscale operations are evident in its revenue base of $2.01 billion, meaning it has fewer distribution channels than its larger rivals
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2%
At $238.84 per share, Boston Beer trades at 21.8x forward price-to-earnings. If you’re considering SAM for your portfolio, see our FREE research report to learn more.
Freshpet (FRPT)
Market Cap: $4.05 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 Do We Think Twice About FRPT?
- Subscale operations are evident in its revenue base of $975.2 million, 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 is trading at $83.17 per share, or 29.9x forward price-to-earnings. Read our free research report to see why you should think twice about including FRPT in your portfolio.
General Mills (GIS)
Market Cap: $32.74 billion
Best known for its portfolio of powerhouse breakfast cereal brands, General Mills (NYSE: GIS) is a packaged foods company that has also made a mark in cereals, baking products, and snacks.
Why Does GIS Give Us Pause?
- Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
- 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
- Projected sales decline of 3.9% for the next 12 months points to a tough demand environment ahead
General Mills’s stock price of $60.08 implies a valuation ratio of 14.1x forward price-to-earnings. To fully understand why you should be careful with GIS, check out our full research report (it’s free).
Stocks We Like More
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
