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 -2.4% decline paled in comparison to the S&P 500’s 14.2% gain.
Some companies can buck this trend, but the odds aren’t great for the ones we’re analyzing today. On that note, here are three consumer stocks we’re steering clear of.
MGP Ingredients (MGPI)
Market Cap: $317.6 million
Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ: MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry
Why Are We Out on MGPI?
- Annual sales declines of 14.6% for the past three years show its products struggled to connect with the market
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 22% annually, worse than its revenue
- 9.5 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
MGP Ingredients is trading at $14.82 per share, or 8.9x forward P/E. Dive into our free research report to see why there are better opportunities than MGPI.
Tyson Foods (TSN)
Market Cap: $18.65 billion
Started as a simple trucking business, Tyson Foods (NYSE: TSN) is one of the world’s largest producers of chicken, beef, and pork.
Why Do We Steer Clear of TSN?
- Flat unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend
- Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 6.9% that must be offset through higher volumes
Tyson Foods’s stock price of $53.20 implies a valuation ratio of 13.6x forward P/E. If you’re considering TSN for your portfolio, see our FREE research report to learn more.
Herbalife (HLF)
Market Cap: $1.26 billion
With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE: HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.
Why Is HLF Not Exciting?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Projected sales growth of 2.1% for the next 12 months suggests sluggish demand
- Earnings per share fell by 8.3% annually over the last three years while its revenue grew, partly because it diluted shareholders
At $12.06 per share, Herbalife trades at 4.5x forward P/E. Dive into our free research report to see why there are better opportunities than HLF.
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