Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. But recently, the industry has failed to do its job as it shed 5.7% over the past six months. This drawdown was worse than the S&P 500’s 1% decline.
Given the low switching costs of basic goods like paper towels, many companies will continue generating poor results while only a handful will shine. Taking that into account, here are three consumer stocks best left ignored.
Boston Beer (SAM)
Market Cap: $2.39 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 Is SAM Not Exciting?
- Products have few die-hard fans as sales have declined by 2% annually over the last three years
- Subscale operations are evident in its revenue base of $1.96 billion, meaning it has fewer distribution channels than its larger rivals
- Sales are projected to be flat over the next 12 months and imply weak demand
Boston Beer is trading at $233.83 per share, or 23.1x forward P/E. To fully understand why you should be careful with SAM, check out our full research report (it’s free).
Flowers Foods (FLO)
Market Cap: $1.77 billion
With Wonder Bread as its premier brand, Flowers Foods (NYSE: FLO) is a packaged foods company that focuses on bakery products such as breads, buns, and cakes.
Why Do We Avoid FLO?
- Shrinking unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Estimated sales decline of 1.3% for the next 12 months implies a challenging demand environment
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 21% annually while its revenue grew
Flowers Foods’s stock price of $8.35 implies a valuation ratio of 9.9x forward P/E. If you’re considering FLO for your portfolio, see our FREE research report to learn more.
Estée Lauder (EL)
Market Cap: $25.23 billion
Named after its founder, who was an entrepreneurial woman from New York with a passion for skincare, Estée Lauder (NYSE: EL) is a one-stop beauty shop with products in skincare, fragrance, makeup, sun protection, and men’s grooming.
Why Are We Cautious About EL?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Subpar operating margin of 0.3% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Earnings per share decreased by more than its revenue over the last three years, partly because it diluted shareholders
At $70.03 per share, Estée Lauder trades at 27.6x forward P/E. Read our free research report to see why you should think twice about including EL in your portfolio.
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