With the new inflation numbers coming in under expectations, that’s a bullish sign that the Federal Reserve won’t be adding more hikes to interest rates, at least for now.
Slower inflation is a good sign since it means that the transition from a cool economy to a hot one isn’t happening too quickly. It’s transitioning over time, and that’s bullish for consumer stocks since a fast rise in prices means consumers will slow spending or choose value brands over name brands.
As 2018 started, it looked like the economy was heading down the first drop on a roller coaster, gather enormous speed from nearly a dead start. That hurt some stocks as the markets worried that inflation would hit hard and fast, hurting the consumer’s spending power in the process.
Now that this scenario isn’t coming to pass, I wanted to highlight seven consumer goods stocks that will rise again.
Consumer Goods Stocks to Buy: Tata Motors (TTM)
Tata Motors Limited (ADR) (NYSE:TTM) is an India-based commercial and consumer vehicle manufacturer. While it’s a major brand in Asia, in the U.S. and Europe it’s better known by Western badges it owns — Land Rover and Jaguar. Tata badged cars are in 26 countries and four continents.
Yet TTM is off more than 26% year to date.
But this isn’t too surprising, since the entire retail car sector isn’t faring well. Rising interest rates hit the car market — new and used — very quickly. Wall Street is absorbing today’s news and projecting six months into the future.
Now, as it looks like inflation isn’t expanding as quickly as once thought, there’s more opportunity for upside for TTM from lower expectations. Also, commercial vehicles should be strong in coming quarters as well.
Consumer Goods Stocks to Buy: iRobot (IRBT)
iRobot Corporation (NASDAQ:IRBT) was on fire last year, but has shed all its glory in 2018, off 30% in the past 12 months, with much of that coming since January.
The problem for IRBT is twofold. First, it’s the top brand for robotic consumer cleaning devices — vacuums, wet-dry vacs, pool cleaners, gutter cleaners, etc. And that has been a great selling point.
But now consumers have a much broader array of choices in this sector. The programming that made IRBT’s devices unique are no longer that unique. And the competition is competing in price, which means shrinking margins for IRBT.
IRBT remains the quality leader though, and consumers are less likely to be price-sensitive if they have more money in their pockets. Its current valuations are much more reasonable and the economy is turning in its favor.
Consumer Goods Stocks to Buy: Mohawk (MHK)
Mohawk Industries, Inc. (NYSE: MHK) is off 23% since the beginning of 2018. As is true of most of the stocks here, faster growth that was going to drive higher inflation took the wind out of this stock’s sails.
Last year, the feeling that a real recovery was underway boosted the fortunes of a lot of consumer goods stocks. But then 2018 started to feel like too much of a good thing, too fast. And now the sector has sold off.
But this is could be a great time for MHK. As one of the nation’s top consumer and commercial flooring companies, both sectors of its business have more upside than expected.
Mortgage rates as well as commercial and consumer rents aren’t rising as quickly as anticipated, which means opportunity for developers — and more business for MHK. Plus, as banks pushed to expand the home equity loan market earlier this year, a lot of homeowners are undertaking remodeling projects, which also helps MHK.
Consumer Goods Stocks to Buy: JM Smucker (SJM)
J M Smucker Co (NYSE:SJM) has been around since 1897. Its brands include household names like Folgers, Crisco, Pillsbury and of course, Smuckers.
But recently, SJM announced it’s going to the dogs — and cats. Last month SJM announced it was going to buy pet food brand Nutrish for $1.7 billion. It also announced that it was considering selling Pillsbury.
SJM already owns Milk-Bone, Meow Mix, Kibbles n’ Bits, Natural Balance and other pet food companies across the retail spectrum. It seems to be looking for gains in this sector rather than duking it out in the lower-margin baking aisle of the supermarket.
SJM stock is off about 8% year to date, but given SJM’s ability to maximize the synergies of this deal quickly, it could finish this year strong. And its 2.8% dividend is a nice bonus.
Consumer Goods Stocks to Buy: Conagra (CAG)
Conagra Brands Inc (NYSE:CAG) specializes in selling processed and packaged foods inside and outside the U.S.
Founded 99 years ago in Omaha, Nebraska, it has built out an empire of household brands including Hunt’s, Reddi-Wip, Wesson, Peter Pan, Bertolli, PAM, Healthy Choice, Boomchikapop and dozens of others.
CAG stock has been bouncing around in 2018 and is currently flat, not including its 2.2% dividend.
The interesting trend in play here is recent research from an RBC Capital Markets report that notes sales of frozen entrees are rising and this is trend. It may seem counterintuitive as Americans want to eat healthier that they would be turning more towards packaged food. But most fresh food ends up wasted and healthier pre-packaged meals are not only convenient but allow for portion control.
This could bring big opportunities for CAG moving forward.
Consumer Goods Stocks to Buy: Molson Coors (TAP)
Molson Coors Brewing Co (NYSE:TAP) is a major brewer based in Colorado that distributes its products around the world. Along with the eponymous brands, it also makes Henry’s Hard Soda, Blue Moon, Henry Weinhard’s, Leinenkugel’s, Miller (including Miller Lite), Smith and Forge, as well as numerous others.
About a decade ago, the beer industry started undergoing a major global consolidation and now there are handful of companies that own most of the widely distributed brands, or at least have a controlling interest in them, even some of the more “craft” beers on the market.
Given the fact that TAP has a major anchor in Canada, that has helped it keep its biggest revenue base in North America, which helped when the dollar was really strong.
As the dollar weakens, this will boost its profitability from overseas markets. The challenge is, there’s a trend among younger consumers toward hard liquor instead of wine and beer.
TAP is off 25% year to date but this downdraft shouldn’t last a summer approaches and beer sales increase.
Consumer Goods Stocks to Buy: Dean Foods (DF)
Dean Foods Co (NYSE:DF) has had a tough year, although you wouldn’t see it in it stock price at this point.
Off about 10% year to date, DF missed earnings and revenue for Q4. It reported Q1 earnings earlier this week and while not great, they were better than analysts were expecting, so the stock has actually rallied strongly this week.
DF isn’t related to Jimmy Dean’s products. It’s focused on dairy and diary-based products, like its Land o’ Lakes brand of butter and cheese. It also sells under a number of different brand names.
Raw milk costs have fallen by 16% so far this year, which has helped DF’s bottom line and should help it in coming quarters as well. It’s also sporting a 3.5% dividend at this point, which would be helpful in coming quarters as the stock starts to regain some of the territory it has lost over the past few quarters.
Its TruMoo and Organic Valley boutique brands should see growth, as well as its Friendly’s ice cream, as summer approaches. It’s array of brands at all price points should also help as the economy continues to expand.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.