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 -4.8% decline paled in comparison to the S&P 500’s 10.5% gain.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here is one consumer stock boasting a durable advantage and two we would avoid.
Two Consumer Staples Stocks to Sell:
Utz (UTZ)
Market Cap: $1.26 billion
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 Sell UTZ?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Revenue base of $1.45 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Utz is trading at $14.22 per share, or 17.4x forward P/E. Dive into our free research report to see why there are better opportunities than UTZ.
USANA (USNA)
Market Cap: $250.9 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 Are We Wary of USNA?
- Annual sales declines of 1.2% for the past three years show its products struggled to connect with the market
- Smaller revenue base of $913.4 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
At $13.59 per share, USANA trades at 13.3x forward P/E. Check out our free in-depth research report to learn more about why USNA doesn’t pass our bar.
One Consumer Staples Stock to Watch:
Altria (MO)
Market Cap: $114.3 billion
Best known for its Marlboro brand of cigarettes, Altria (NYSE: MO) offers tobacco and nicotine products.
Why Could MO Be a Winner?
- Differentiated product offerings are difficult to replicate at scale and result in a best-in-class gross margin of 88%
- Healthy operating margin of 54.1% shows it’s a well-run company with efficient processes
- Robust free cash flow margin of 43.8% gives it many options for capital deployment, and its expanding margin gives it even more flexibility
Altria’s stock price of $68.25 implies a valuation ratio of 11.5x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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