Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. But they’re also double-edged swords as they often lag in booming conditions, and this pattern has persisted recently. Over the past six months, the industry has recorded a loss of 3.4%, a far cry from the S&P 500’s 17.4% ascent.
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.
Kellanova (K)
Market Cap: $27.48 billion
With Corn Flakes as its first and most iconic product, Kellanova (NYSE:K) is a packaged foods company that is dominant in the cereal and snack categories.
Why Are We Cautious About K?
- Shrinking unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Issuance of new shares over the last three years caused its earnings per share to fall by 4.4% annually, even worse than its revenue declines
- Free cash flow margin dropped by 3.5 percentage points over the last year, implying the company became more capital intensive as competition picked up
At $78.72 per share, Kellanova trades at 20.9x forward P/E. Read our free research report to see why you should think twice about including K in your portfolio.
SunOpta (STKL)
Market Cap: $735.1 million
Committed to clean-label foods, SunOpta (NASDAQ:STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.
Why Does STKL Fall Short?
- Annual revenue declines of 4.9% over the last three years indicate problems with its market positioning
- Subscale operations are evident in its revenue base of $763.2 million, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 15.6% is an output of its commoditized products
SunOpta’s stock price of $6.24 implies a valuation ratio of 25.7x forward P/E. Dive into our free research report to see why there are better opportunities than STKL.
TreeHouse Foods (THS)
Market Cap: $886.3 million
Whether it be packaged crackers, broths, or beverages, Treehouse Foods (NYSE:THS) produces a wide range of private-label foods for grocery and food service customers.
Why Should You Dump THS?
- Falling unit sales over the past two years suggest it might have to lower prices to stimulate growth
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 16.5%
- Underwhelming 1.5% return on capital reflects management’s difficulties in finding profitable growth opportunities
TreeHouse Foods is trading at $17.55 per share, or 8.8x forward P/E. If you’re considering THS for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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