For a few days, it looked like the market might get back into a “risk on” mood again, favoring growth names over “cheap stocks” regardless of their frothy valuations, at the expense of consumer-oriented stocks regardless of their all-weather reliability. Now the question is back on the table.
Or, maybe it was never really off the table. A look back at the way things have taken shape over the course of the past few weeks indicates that consumer-oriented and safe-haven names have actually done rather well, while growth names haven’t.
Better still, some of the most compelling picks from the consumer sectors are still stunningly cheap stocks right now. Considering the uncertainty ahead, wise investors should make a point of upping their exposure to this sliver of the market for the indefinite future.
With that as the backdrop, here’s a run-down of the top ten most attractive consumer stocks you can own right now.
[Editor’s note: This story was originally published in July 2018. It has since been updated and republished to coincide with the similar consumer stocks market environment of October 2018.]
Cheap Consumer Stocks: Packaging Corp (PKG)
It’s boring, but that’s the point.
You’ve probably held a Packaging Corp (NYSE:PKG) product in your hands without even realizing it. The company makes all sorts of boxes, including those used to transport fruits and vegetables that then become suitable displays in a grocery store. That’s only the beginning though. Packaging Corp makes storage and display solutions of all sorts, most of which consumers and corporations purchase regardless of the economic backdrop.
It’s unlikely the outfit will ever post jaw-dropping sales or earnings growth, but with a forward-looking P/E of less than 13, there’s certainly plenty of value on the table.
Cheap Consumer Stocks: Hanesbrands (HBI)
Socks and underwear? Like Packaging Corp, it’s a product line that never goes out of style. That alone isn’t a reason one might want to own Hanesbrands (NYSE:HBI) though. Neither is the perfectly palatable forward-looking P/E of 11.5. Even the dividend yield of 2.7% isn’t necessarily a must-have.
Rather, the reason HBI is so compelling here is that the analyst community is only lukewarm on the stock, sporting an average price target of $22.47. That’s almost where the stock’s priced right now.
There’s a method to the madness. It’s called contrarianism. The time to step into a solid name is when it’s out of favor. If Hanesbrands continues to product the kind of sales and profit growth it’s been driving, the professionals will have to warm up to it again.
Those impending upgrades could light a real fire below the stock.
Cheap Consumer Stocks: Edgewell Personal Care (EPC)
Edgewell Personal Care (NYSE:EPC) is probably a name most investors haven’t heard of. It’s a name most investors are more familiar with than they realize though.
Ever heard of Schick shaving products? How about Hawaiian Tropic suntan lotion? Playtex? Those are all personal care products made by Edgewell.
It hasn’t been the strongest of companies for the past few years, and subsequently, analysts are less-than-thrilled. Like Hanesbrands though, that sets the stage for lots of upgrades and increases in price targets. And, with next year projected as something of a turning point in terms of sales and profits, those improved opinions may start to take shape sooner than later… particularly if other sectors start to fall out of favor.
The forward-looking P/E of 14.3 doesn’t exactly place Edgewell among the cheapest of the cheap stocks, but it’s certainly far from being expensive given the backdrop.
Cheap Consumer Stocks: Brunswick (BC)
You may know the name Brunswick (NYSE:BC) as a maker of bowling balls and bowling pins. But, that’s not all the company does. In fact, it doesn’t even do that anymore, having sold its bowling business off to a privately held outfit back in 2015. All it does now is make boats and billiard products, and fitness equipment.
It’s good at what it does though … real good. Even when the economy was just so-so a couple of years ago, the company was producing growth. Now that the economy is humming and consumer confidence is soaring, they’re willing and able to splurge a little.
That makes BC shares, priced at only 13 times next year’s expected profits, a compelling prospect.
Cheap Consumer Stocks: Apple (AAPL)
That’s not a misprint. Though iPhone-maker Apple (NASDAQ:AAPL) is often thought of a technology stock, it’s much more aligned with (and dependent on) consumers and their moods. Its products are built for all sorts of people, customizable for various preferences, and serve as a delivery vehicle for all sorts of digital entertainment ranging from music to video to games.
It’s a consumer-centric company, whether its future focus is hardware or the digital content that makes its hardware fun and fulfilling to use.
It’s also a relatively cheap company, given its revenue growth rate. Its top line is expected to improve to the tune of 14% this year, versus a trailing P/E of 18.4 and a forward-looking one of only 14.4. That’s cheap, and even more so by technology stock standards.
Cheap Consumer Stocks: Carter’s (CRI)
Yes, this is the same Carter’s (NYSE:CRI) that makes baby clothes — an arena where consumers tend not to skimp.
Like most of the other value-priced names on this list of cheap stocks within the consumer goods sector, Carter’s isn’t growing like gangbusters. Indeed, it’s barely growing at all. This year’s top line is projected to improve by less than 3%, and then ramp up by only 4% next year.
Slow and steady wins the race, particularly when earnings are growing considerably faster than sales are. This year’s expected income of $6.45 per share is a 12% improvement on last year’s $5.76, while next year’s estimate of $7.05 is 9% better than this year’s expected bottom line. And for the record, Carter’s has topped estimates for six straight quarter’s now.
All of a sudden that relatively low projected P/E of 16.4 looks like even more of a bargain.
Cheap Consumer Stocks: Mohawk Industries (MHK)
Although there’s no denying the home-construction market is better than it was just a few years ago following the post-subprime-meltdown malaise, there’s also no way of denying it may never become the fever-pitched frenzy it was back in 2006.
Instead, people are staying put, choosing to improve the home they live in now rather than buy a new home. Harvard University’s Joint Center for Housing Studies’ Leading Indicator of Remodeling Activity (LIRA) suggests remodeling expenditures will remain above 7% over the remainder of 2018 and into 2019, which is even more growth than we’ve seen in recent years.
It’s a trend that bodes quite well for Mohawk Industries (NYSE:MHK), which is the world’s largest carpet and flooring materials company. It’s also a trend that makes its projected P/E of 13.1 an even juicier bargain.
Cheap Consumer Stocks: Newell Brands (NWL)
If the name Newell Brands (NYSE:NWL) seems familiar but you can’t quite make the connection, add the word ‘Rubbermaid’ to it. Yes, Newell Brands is the parent of Newell Rubbermaid. It also owns brands like Yankee Candle, Graco, Oster, Sharpie and more. It makes a little of everything, and most of its products are goods you don’t give a second thought about.
The past twelve months have been tough ones for shareholders. NWL stock has lost roughly half of its value since July of 2017, with most of the concern centering on a sales slowdown that’s forced the company to take rather drastic action.
The sellers have arguably overshot though. Newell shares are priced at 6.2 times their trailing income and less than 10 times next year’s expected income at a point in time when consumer spending is strengthening and a legitimate company turnaround is in view.
Cheap Consumer Stocks: Whirlpool (WHR)
There used to be a time when Whirlpool (NYSE:WHR) dominated the home appliance, if only because it was the most assessable name in the business. Those days are gone though, with newcomers entering the washer and dryer market, displacing Whirlpool. The stock, once a stalwart, has been shelved by many investors as a has-been.
Though Whirlpool still has plenty to figure out about doing business in the modern era, sales are stabilizing, and the bottom line is growing in earnest again. The pros are calling for last year’s per-share profits of $13.74 to swell to $15.63 this year, and reach $17.91 per share next year.
That double-digit earnings growth pace makes the forward-looking P/E of 8.6 a screaming bargain.
Cheap Consumer Stocks: Fortune Brands (FBHS)
Last but not least, put Fortune Brands (NYSE:FBHS) on your watchlist of cheap stocks from the consumer sector to consider.
You’ll likely know it as a cabinetry and fixture, and for good reason — it still makes plenty of both, under the KitchenCraft, Moen and Norcraft brands, just to name a few. The same remodeling spending news that could prove huge for Mohawk is also a wave that Fortune Brands can ride.
That’s not all Fortune Brands has going for it now though. The company has also gotten in on the smart-home craze, leveraging its MasterLock and American Lock brands to enter the digitally-managed lock fray (not that the basic padlock still isn’t an important piece of its business).
However it makes its money, the projected P/E of 13.6 is a relative bargain given its forward-looking P/E of 13.6.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.