Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. 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 -1.4% decline paled in comparison to the S&P 500’s 5.2% gain.
Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. Taking that into account, here are three consumer stocks best left ignored.
Mission Produce (AVO)
Market Cap: $881.3 million
Founded in 1983 in California, Mission Produce (NASDAQ: AVO) grows, packages, and distributes avocados.
Why Should You Sell AVO?
- Smaller revenue base of $1.39 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Forecasted revenue decline of 15% for the upcoming 12 months implies demand will fall off a cliff
- Gross margin of 10.9% is an output of its commoditized products
At $12.48 per share, Mission Produce trades at 15.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including AVO in your portfolio.
Utz (UTZ)
Market Cap: $1.11 billion
Tracing its roots back to 1921 when Bill and Salie Utz began making potato chips in their kitchen, Utz Brands (NYSE: UTZ) offers salty snacks such as potato chips, tortilla chips, pretzels, cheese snacks, and ready-to-eat popcorn, among others.
Why Are We Out on UTZ?
- 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
- Modest revenue base of $1.43 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Underwhelming 0.3% return on capital reflects management’s difficulties in finding profitable growth opportunities
Utz is trading at $12.93 per share, or 14.3x forward P/E. Check out our free in-depth research report to learn more about why UTZ doesn’t pass our bar.
Edgewell Personal Care (EPC)
Market Cap: $1.07 billion
Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care (NYSE: EPC) sells personal care products in the skin and sun care, shave, and feminine care categories.
Why Do We Pass on EPC?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share fell by 2.6% annually over the last three years while its revenue was flat, showing each sale was less profitable
- Capital intensity has ramped up over the last year as its free cash flow margin decreased by 4.9 percentage points
Edgewell Personal Care’s stock price of $22.93 implies a valuation ratio of 7.1x forward P/E. Dive into our free research report to see why there are better opportunities than EPC.
Stocks We Like More
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