13 Big Consumer Stocks to Cash Out of ASAP

A host of consumer staples companies are running hot, but their valuations are getting fat while the air is getting thin

Consumer stocks have been on a tear in 2015, with sleepy staples companies not just holding strong in a down market but also adding significant gains on the year. In fact, a host of big-name consumer stocks like Kellogg (K), Campbell Soup (CPB) and General Mills (GIS) are at or near 52-week highs right now.

13 Big Consumer Stocks to Cash Out of ASAP
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But a deeper look into the numbers shows that this run could be coming to an end for many of these highfliers. After all, entrenched consumer brands rarely have a lot of growth ahead of them. And furthermore, many of these consumer staples stocks are overvalued compared with the typical stock in the S&P 500 posting a price-to-earnings ratio of 16.5.

When you trade for a premium on earnings but don’t really have the growth to back up optimism, it’s not a good place to be.

That’s why I strongly advise investors consider cashing out of these 13 consumer names while they are at current levels, and moving into more fairly valued assets to protect your profits.

Consumer Stocks to Sell: Campbell Soup (CPB)

  • Consumer Stocks to Sell: Campbell Soup (CPB)Forward price-to-earnings ratio: 18.8
  • 2015 projected growth: 6% EPS growth on 1% revenue growth
  • 2016 projected growth: 5% EPS growth on 2% revenue growth

Campbell Soup (CPB) needs no introduction. However, if you think the power of this legacy brand amounts to much growth, you better think again. A stagnant top line coupled with ho-hum earnings indicates this company doesn’t have much more upside.

If that wasn’t enough, Moody’s downgraded CPB late last year as the company increasingly stretches itself on stock buybacks and acquisition hopes instead of finding ways to organically grow.

Not a good sign for long-term potential.

Consumer Stocks to Sell: J.M. Smucker (SJM)

  • Consumer Stocks to Sell: J.M. Smucker (SJM)Forward price-to-earnings ratio: 18.2
  • 2015 projected growth: 7% EPS growth on 40% revenue growth
  • 2016 projected growth: 11% EPS growth on 3% revenue growth

J.M. Smucker (SJM) is a jam giant that made a lot of headlines in February with its acquisition of Big Heart Pet Brands for $5.8 billion, moving it into the cat food and puppy chow business. But after an initial pop in the top line — and a subsequent 15% pop in share prices since the beginning of the year — you have to wonder what comes next as the company falls back into weak revenue expansion and heavy reliance on cost cutting to drive earnings growth.

Whether SJM has the know-how to pull that off or the true operational “synergies” to achieve economies of scale remains an open question, however.

Consumer Stocks to Sell: Kellogg (K)

  • Consumer Stocks to Sell: Kellogg (K)Forward price-to-earnings ratio: 17.9
  • 2015 projected growth: 8% EPS growth on 5% revenue decline
  • 2016 projected growth: 7% EPS growth on 1% revenue growth

Kellogg (K) is a consumer titan, with products including Froot Loops and Nutri-Grain bars and Pringles, to name a few. Revenue growth has been incredibly hard to come by lately, however, and earnings growth has remained rather lackluster despite this powerful brand portfolio.

Kellogg certainly seems fully valued at current prices — and Wall Street tends to agree, with the current print on K stock above both the median and mean estimate among the 14 analysts covering the stock.

Consumer Stocks to Sell: McCormick (MKC)

  • Consumer Stocks to Sell: McCormick (MKC)Forward price-to-earnings ratio: 22
  • 2015 projected growth: 4% EPS growth on 1% revenue growth
  • 2016 projected growth: 7% EPS growth on 4% revenue growth

McCormick (MKC) is a consumer leader that anyone with a spice rack will easily recognize. However, spices aren’t exactly a growth business, and MKC stock has had serious trouble moving its top line higher. What’s odd is that investors are willing to pay a forward price-to-earnings ratio of over 20 for this firm despite other similar companies have much more ambitious repurchase plans; the latest MKC stock buyback plan was for just $600 million, just about 5% of outstanding shares at current prices even if fully executed.

Consumer Stocks to Sell: J&J Snack Foods (JJSF)

  • Consumer Stocks to Sell: J&J Snack Foods (JJSF)Forward price-to-earnings ratio: 28.3
  • 2015 projected growth: 2% EPS growth on 7% revenue growth
  • 2016 projected growth: 7% EPS growth on 4% revenue growth

J&J Snack Foods (JJSF) is the parent of various brands including Ice frozen drinks and Patio burritos. Why a company like this trades for a tech-like forward P/E of 28 is a mystery — and if you’re smart, you’ll steer clear instead of paying that premium for a low-growth packaged foods company.

What’s worse, without J&J burning $7.5 billion or so on share repurchases in 2014 and over $2.1 billion through the first nine months of the current fiscal year, EPS growth would have been even less impressive.

Consumer Stocks to Sell: Flowers Foods (FLO)

  • Flowers Foods NYSE:FLOForward price-to-earnings ratio: 22.4
  • 2015 projected growth: 10% EPS growth on 1% revenue growth
  • 2016 projected growth: 9% EPS growth on 3% revenue growth

Flowers Foods (FLO) is the bakery behind Wonder, Sunbeam and Nature’s Own breads along with Tastykake and Mrs. Freshley’s snack foods.

The top-line growth of this company, however, hasn’t been very appetizing. And while EPS expansion looks OK, the premium that investors are paying for this low-growth company doesn’t quite seem worth it here.

Consumer Stocks to Sell: Hormel Foods (HRL)

  • Consumer Stocks to Sell: Hormel Foods (HRL)Forward price-to-earnings ratio: 21.7
  • 2015 projected growth: 16% EPS growth on 1% revenue growth
  • 2016 projected growth: 9% EPS growth on 6% revenue growth

Hormel Foods (HRL) is a packaged foods giant that sells branded lunchmeats as well as Skippy peanut butter and Mexican foods under the Chi-Chi’s label. The consumer goods company has been acquisition happy lately, however, purchasing CytoSport Holdings in 2014 for $450 million to to get its hands on the Muscle Milk line of protein drinks and buying Applegate Farms earlier this year for $775 million to branch into the organics space.

Of course, you have to wonder how this increasingly complicated business will be managed.

Furthermore, top-line growth is lackluster even accounting for these acquisitions. That doesn’t leave much room for error.

Consumer Stocks to Sell: Clorox (CLX)

  • Consumer Stocks to Sell: Clorox (CLX)Forward price-to-earnings ratio: 22
  • 2015 projected growth: 6% EPS growth on 1% revenue growth
  • 2016 projected growth: 7% EPS growth on 3% revenue growth

Clorox (CLX) is a cleaning products king, but is looking downright tarnished from a top-line perspective. While EPS growth continues to be reliable and the company does sport a 2.7% dividend, the P/E ratio of about 22 is incredibly rich.

With shares trying to return to all-time highs and at or above most analysts’ price target for CLX stock, investors should think twice before considering Clorox a safe-haven consumer investment now.

Consumer Stocks to Sell: General Mills (GIS)

  • Consumer Stocks to Sell: General Mills (GIS)Forward price-to-earnings ratio: 17.9
  • 2015 projected growth: 3% EPS growth on -1% revenue growth
  • 2016 projected growth: 7% EPS growth on 2% revenue growth

General Mills (GIS) has the powerful brands of Betty Crocker, Pillsbury and Cheerios to keep it at the top of shopping lists. However, it’s hard to imagine GIS grabbing an even greater share of the cupboard, and that means a stagnant top line and operations that don’t have very good growth prospects going forward.

While General Mills stock is admittedly a safe haven, the fact that shares are already at an all-time high with a forward P/E above the S&P’s average should give investors pause.

Consumer Stocks to Sell: Pinnacle Foods (PF)

  • Consumer Stocks to Sell: Pinnacle Foods (PF)Forward price-to-earnings ratio: 22.1
  • 2015 projected growth: 9% EPS growth on 2% revenue growth
  • 2016 projected growth: 9% EPS growth on 2% revenue growth

Pinnacle Foods (PF) is in many grocery store aisles with a wide array of products, from Duncan Hines baking products to Vlasic pickles to Wish-Bone salad dressing to Birds Eye veggies. And like General Mills, this gives Pinnacle plenty of staying power … but little growth potential.

Reliability is nice, sure, but the forward P/E ratio of 22 doesn’t leave a lot of room for error, and a dividend yield of 2.2% that is on par with 10-year T-Notes isn’t much of a sweetener.

Consumer Stocks to Sell: Lancaster Colony (LANC)

  • Consumer Stocks to Sell: Lancaster Colony (LANC)Forward price-to-earnings ratio: 22.9
  • 2015 projected growth: 10% EPS growth on 7% revenue growth
  • 2016 projected growth: 6% EPS growth on 3% revenue growth

Lancaster Colony (LANC) owns Marzetti salad dressings and New York Brand breads and croutons, as well as a robust foodservice business. Growth isn’t bad; however, the premium investors are paying for LANC shares right now is a bit rich.

The deceleration in growth coupled with a sub-2% dividend and a P/E of over 22 hardly make Lancaster Colony a must-own investment considering the other alternatives in the market at large and even within the staples sector.

Consumer Stocks to Sell: Fresh Del Monte Produce (FDP)

  • Consumer Stocks to Sell: Fresh Del Monte Produce (FDP)Forward price-to-earnings ratio: 16.7
  • 2015 projected growth: -14% EPS growth on 2% revenue growth
  • 2016 projected growth: 16% EPS growth on 2% revenue growth

Fresh Del Monte Produce (FDP) recently returned to its 2008 high, and with a forward price-to-earnings of “only” about 17, is one of the cheaper stocks on this list from a valuation perspective.

But underneath this momentum and purported value in shares is the hard truth that revenue is going nowhere and earnings are set to decline sharply in FY2015. Yes, they bounce back basically to where they were next year, but a lost two years is never anything to be proud of.

Consumer Stocks to Sell: Snyder’s-Lance (LNCE)

  • Forward price-to-earnings ratio: 26.2
  • 2015 projected growth: 6% EPS growth on 6% revenue growth
  • 2016 projected growth: 15% EPS growth on 4% revenue growth

Snyder’s-Lance (LNCE) owns brands including Snyder’s of Hanover pretzels, Lance crackers and Archway cookies. Once again, we find a company with modest EPS growth, a sluggish top line and a steep premium investors must pay based on future earnings. And considering LNCE stock has missed earnings forecasts in three of the last four quarters, you may want to think twice before depending too much on predicted earnings growth.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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