Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. But recently, the industry has failed to do its job as it shed 8.5% over the past six months. This drop was disappointing since the S&P 500 held its ground.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. On that note, here are two resilient consumer stocks we’ve added to our cart and one we’re steering clear of.
One Consumer Staples Stock to Sell:
Freshpet (FRPT)
Market Cap: $3.17 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 Are We Cautious About FRPT?
- Modest revenue base of $1.10 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Underwhelming 0.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
Freshpet’s stock price of $64.02 implies a valuation ratio of 46.6x forward P/E. If you’re considering FRPT for your portfolio, see our FREE research report to learn more.
Two Consumer Staples Stocks to Watch:
Colgate-Palmolive (CL)
Market Cap: $68.23 billion
Formed after the 1928 combination between toothpaste maker Colgate and soap maker Palmolive-Peet, Colgate-Palmolive (NYSE: CL) is a consumer products company that focuses on personal, household, and pet products.
Why Do We Like CL?
- Enormous revenue base of $20.38 billion provides significant negotiating leverage in retail partnerships
- Products command premium prices and result in a best-in-class gross margin of 60.3%
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
At $85.48 per share, Colgate-Palmolive trades at 22x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Keurig Dr Pepper (KDP)
Market Cap: $36.13 billion
Born out of a 2018 merger between Keurig Green Mountain and Dr Pepper Snapple, Keurig Dr Pepper (NASDAQ: KDP) is a consumer staples powerhouse boasting a portfolio of beverages including sodas, coffees, and juices.
Why Are We Fans of KDP?
- Products are reaching more households as its unit sales averaged 4.4% growth over the past two years
- Projected revenue growth of 57.5% for the next 12 months is above its three-year trend, pointing to accelerating demand
- Operating margin expanded by 4.7 percentage points over the last year as it scaled and became more efficient
Keurig Dr Pepper is trading at $26.85 per share, or 11.9x forward P/E. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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