Consumer staples stocks have been performing well of late, buoyed by rising consumer confidence and improving economy. And picks in this sector are some of the best stocks to buy now.
A strong recovery in the housing market and an improving labor market played a crucial role in boosting buyers’ confidence. Encouraging manufacturing index readings issued by the Institute of Supply Management (ISM) also hints at a pickup in GDP, indicating that economy is in good shape currently.
Consumer confidence improved moderately in June, with the Consumer Confidence Index up from May’s reading of 117.6 to 118.9 in June. Steady job additions and persistently low unemployment have helped the household wealth to increase. This in turn, boosted consumer spending.
Surging consumer confidence and indications of a stronger economy in the second half of the year make the consumer staples sector attractive. Investing in consumer staples stocks is safer because of their defensive nature. However, picking winning stocks is not an easy task.
With the help of our new style score system, we have identified three consumer staples stocks that have excellent prospects and are good bets for value investors.
Our Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
To arrive at the best value picks, we have shortlisted consumer staple stocks that have a Zacks Rank #1 or 2 with a Value Style Score of ‘A’.
Stock to Buy #1 – Aramark
Headquartered in Philadelphia, PA, Aramark (NYSE:ARMK) carries a Zacks Rank #2 along with a Value Score of ‘A’. The company offers food services, facilities management, uniform and career apparel to health care institutions, universities, school districts, stadiums and businesses.
The Zacks Consensus Estimate for Aramark has increased 2.3% for fiscal 2017 and improved 2.0% for fiscal 2018 over the last 60 days. Further, the stock has a long-term earnings growth rate of 12.00% and beta of 0.50. Though the company’s forward P/E multiple is higher than the industry and S&P, the stock has strong fundamentals. Aramark has been delivering strong, broad-based productivity improvements in North America and International base accounts. It has also been reinvesting in technology and capabilities. The provider of food, facilities and uniform services has delivered positive earnings surprises in six out of the seven consecutive quarters, along with in-line results in the remaining one. It has also posted positive sales surprise in four of the seven consecutive quarters.
Aramark’s shares have moved up 17.9% in the last six months significantly outpacing the Zacks categorized Food-Miscellaneous Diversified industry’s 3.9% decline.
Stock to Buy #2 – Sanderson Farms
Headquartered in Laurel, MS, Sanderson Farms, Inc. (NASDAQ:SAFM) is one of the largest poultry producers in the U.S. It is engaged in the production, processing, marketing and distribution of fresh and frozen chicken products.
The company has a Value score of ‘A’ and sports a Zacks Rank #1. It delivered an average positive earnings surprise of 8.53% over the trailing four quarters. Further, the stock has a low beta of 0.59. It possesses a forward P/E of 11.53x, lower than the industry average of 13.80x and S&P average of 18.60x.
Sanderson Farms’ shares have moved up 21.5% in the last six months significantly outpacing the Zacks categorized Food-Meat Products industry’s gain of 0.8%.
Stock to Buy #3 – Supervalu
SUPERVALU, Inc. (NYSE:SVU) is one of the nation’s largest supermarket retailer and largest food distributor. We note that this grocery dealer does not have a good track record of financial performance. The company’s earnings have lagged the Zacks Consensus Estimate in two of the trailing four quarters, with an average miss of 6.7%. Moreover, its sales have lagged the consensus mark in six of the seven straight quarters. In fact, SUPERVALU’s shares have underperformed the Zacks categorized Food-Miscellaneous Diversified industry in the last six months. During the said time frame, shares of this company plunged 30.9% compared to the industry’s decline of 4.8%.
Nevertheless, SUPERVALU is taking measures to turn around in its performance. In fact, the company is taking initiatives to expand its retail banners in order to boost sales. We commend its decision to spin off its Save-A-Lot stores as this would help the company to concentrate on its more profitable core businesses. Moreover, it has undertaken several measures to improve comps in the retail sector and increase operating efficiency.
Estimates have increased for 2017 over the last 30 days. Further, it is expected to witness earnings growth of 18.97% in 2017. It possesses a forward P/E of 9.45x, lower than the S&P average of 18.60x. With a Value Score of ‘A’ and an attractive Zacks Rank #2, this stock is a hot pick for investors.