Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. 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 -5.1% decline paled in comparison to the S&P 500’s 11.7% gain.
Some companies can buck this trend, but the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three consumer stocks we’re steering clear of.
Central Garden & Pet (CENT)
Market Cap: $2.32 billion
Enhancing the lives of both pets and homeowners, Central Garden & Pet (NASDAQ:CENT) is a leading producer and distributor of essential products for pet care, lawn and garden maintenance, and pest control.
Why Does CENT Give Us Pause?
- Products have few die-hard fans as sales have declined by 1.9% annually over the last three years
- Forecasted revenue decline of 5.1% for the upcoming 12 months implies demand will fall even further
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $41.69 per share, Central Garden & Pet trades at 14.2x forward P/E. Dive into our free research report to see why there are better opportunities than CENT.
General Mills (GIS)
Market Cap: $20.99 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 Is GIS Risky?
- Declining unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Sales are projected to tank by 3.4% over the next 12 months as its demand continues evaporating
- Operating profits fell over the last year as its sales dropped and it struggled to adjust its fixed costs
General Mills’s stock price of $39.30 implies a valuation ratio of 13.2x forward P/E. To fully understand why you should be careful with GIS, check out our full research report (it’s free).
Ingredion (INGR)
Market Cap: $6.41 billion
Known for its ability to turn ordinary corn into thousands of different food ingredients, Ingredion (NYSE:INGR) transforms grains, fruits, vegetables and other plant-based materials into specialty starches, sweeteners and other ingredients for food, beverage and industrial markets.
Why Are We Cautious About INGR?
- Products aren’t resonating with the market as its revenue declined by 4.2% annually over the last three years
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- 6.1 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
Ingredion is trading at $104.00 per share, or 9.3x forward P/E. Dive into our free research report to see why there are better opportunities than INGR.
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